London close: Stocks finish lower after Airbus profit warning

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Rolls-Royce Holdings

575.40p

16:59 20/12/24

-0.72%

-4.20p

London stocks ended Tuesday in negative territory, influenced by significant losses in key sectors following a profit warning from Airbus.

Travel & Leisure

9,231.47

17:14 20/12/24

0.69%

63.21

The FTSE 100 index fell by 0.41%, closing at 8,247.79 points, while the FTSE 250 experienced a steeper decline of 0.97%, settling at 20,363.43 points.

In currency markets, sterling was last down 0.06% on the dollar, trading at $1.2679, while it strengthened 0.2% against the euro, changing hands at €1.1842.

“Both the S&P 500 and Nasdaq 100 regained some of their last few days' losses in line with the Nvidia share price, while the Dow ended its fourth straight day of gains ahead of Friday's PCE inflation reading,” said IG senior market analyst Axel Rudolph.

“In Asia, the BSE Sensex made a fresh all-time high, while in Europe the DAX 40 heavyweight Airbus' near 11% share price drop on pared back profit forecasts dragged the whole aerospace sector down and led to a near 1% drop in the index ahead of Wednesday's German consumer confidence data.”

Rudolph added that the recent oil price rise on the back of heightened geopolitical tensions and higher anticipated summer demand stalled on Tuesday, below its near two-month high, ahead of US API crude oil inventories.

“Gold and silver prices retreated as the greenback made back some of Monday's losses.”

Investors looking ahead to US inflation, UK GDP data

On the economic front, market participants were eagerly anticipating significant economic data from the United States and the United Kingdom later in the week.

In the US, the personal consumption expenditure (PCE) data for May is slated for release on Friday, while in the UK, first-quarter GDP figures were expected to be published.

Fresh data released on Tuesday showed US house prices reaching new record highs in April, according to a widely-followed survey.

The S&P CoreLogic Case-Shiller US national home price index indicated that the annual rate of increase slowed to 6.3% in April from 8.3% in March.

On a monthly basis, the index rose by 0.3%, consistent with the previous month’s growth.

Consumer confidence in the US meanwhile showed little change in June, supported by a strong jobs market.

The Conference Board reported that its consumer confidence index slightly declined from 101.3 in May to 100.4 in June, reflecting stable but cautious optimism among Americans regarding the economy.

Aerospace suppliers in the red after Airbus profit warning

In equities, Rolls-Royce Holdings fell 1.12%, Melrose Industries declined 2.37%, Bodycote dropped 5.61%, and Babcock International decreased 3.09%.

The declines were triggered after Airbus announced late on Monday that it would reduce its full-year earnings before interest and tax by about €900m due to financial charges in its Space Systems division.

That cut in earnings guidance is attributed to charges incurred from its telecommunications, navigation, and observation programmes.

Although the immediate cash impact for the year was expected to be around a third of the total amount, the charges would be booked in the second quarter and spread over several years depending on project timelines.

Airbus also revised its commercial aircraft delivery target for 2024 from 800 to 770 units, citing specific supply chain issues, particularly a lack of engines and seat availability.

The adjustment also delayed the company's plan to increase the production rate of A320 jets to 75 per month to 2027, as challenges faced by its supplier Spirit AeroSystems continued to affect the aerostructures business.

As a result, Airbus now anticipated free cash flow before customer financing to be around €3.5bn for 2024, down from the €4bn expected in February.

That new guidance did not, however, account for potential outcomes from ongoing discussions with Spirit AeroSystems.

“It might not have much impact on airlines, who have already indicated that Airbus has reduced scheduled deliveries,” said Finalto chief market analyst Neil Wilson.

“But aircraft manufacturing is proving tricky - just ask Boeing. Demand is not the problem; quite the reverse.

“But if supply can’t keep pace and competition is so constrained, it ought to mean airline capacity doesn’t increase too much, which could keep fares higher for longer.”

Elsewhere, Ocado Group saw a substantial drop of 6.49% after Morgan Stanley reduced its price target on the shares from 345p to 215p, impacting investor sentiment negatively.

Saga experienced a reversal of earlier gains, closing 1.95% lower despite the over-50s holidays and financial products firm affirming that it remained on track to meet its financial year targets, even amidst ongoing challenges in the insurance market.

On the upside, Admiral Group rose 2.16% after an upgrade to ‘buy’ from ‘hold’ by Berenberg, which highlighted the stock’s attractive valuation and potential for further earnings per share (EPS) upgrades.

“Investor Warren Buffett once said: ‘It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price’,” Berenberg said in a research note.

“Fortunately, today investors can buy Admiral, a wonderful company, also at a wonderful price.”

Reporting by Josh White for Sharecast.com.

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