Weekly review

Equity view

Aerospace and defence firm Babcock International said on Friday that trading across the first ten months of the year had been in line with expectations, with its full-year results still set to be fourth quarter weighted. Babcock, which kept its full-year guidance unchanged, stated it had continued to manage costs associated with Covid-19, ongoing inflation and supply chain pressures, with its new operating model on track to deliver savings of approximately £20.0m in the current financial year.

Mike Ashley’s Frasers Group said it had bought digital retailer Studio Retail out of administration, saving the troubled firm and 1,500 jobs. Frasers, the company’s largest shareholder, said the deal included an undisclosed cash sum and a £26.8m payment to Studio Retail’s lenders.

Public transport provider FirstGroup said on Friday that current trading was in line with internal expectations, despite recent Omicron-related travel restrictions temporarily reducing demand levels. FirstGroup said bus volumes had improved to more than 70% of pre-pandemic levels overall, and to around 75% in our operations in England, since the easing of the omicron-related government restrictions, while rail management fee-based operations were delivering performance metrics in line with management's expectations, with its open access operations slightly ahead of guidance.

Iron ore miner Ferrexpo said it had sent force majeure notices to some of its customers after suspending exports from the the port of Pivdennyi in southwest Ukraine after the unprovoked invasion by Russia. The world's third largest exporter of iron ore pellets to the steel industry, said its mining and processing operations, next to the city of Horishni Plavni in central Ukraine, continue to operate.

Real estate investment trust LXI REIT said on Thursday that it had made three new forward funding acquisitions, all of which were funded by its recent £250.0m equity capital raise. LXI REIT acquired a 45,000 square foot Tesco food store and a 22,000 square foot Home Bargains site in Houghton le Spring, as well as a convenience store in Horncastle leased to the Co-Operative Food Group, for a total of £26.0m - reflecting an accretive 5% net initial yield versus the current portfolio valuation yield of 4.5%.

Advertising giant WPP said on Thursday that it had experienced "very strong growth" throughout 2021, driven by demand for digital services, e-commerce, and technology and an "exceptional" new business performance. WPP said like-for-like revenues were up 13.3% year-on-year on a reported basis to £12.8bn, swinging the group from an operating loss of £2.27bn to a profit of £1.22bn. Reported pre-tax profits were £951.0m, a marked improvement against the prior year's £2.79bn pre-tax loss.

Defence company BAE Systems reported a rise in full-year earnings on Thursday as it struck an upbeat note on the outlook. Underlying earnings before interest and tax for 2021 increased 13% to $2.2bn, with revenue up 5% at $21.3bn.

Car dealership Inchcape posted a rise in full-year profit on Thursday as it highlighted strong demand, and announced a £100m share buyback programme. Pre-tax profit for 2021 came in at £296m, up from £128m the year before, with revenue 12% higher at £7.6bn.

Cybersecurity firm Darktrace has entered into a definitive agreement to acquire attack surface management company Cybersprint as part of a deal valued at €47.5m. Darktrace said on Wednesday that its acquisition of Cybersprint, which it stated was aligned with its vision of delivering a 'continuous cyber AI loop', would be paid approximately 75% in cash and 25% in equity, valuing the transaction at approximately 12.5 x Cybersprint's annual recurring revenue.

Insurance provider Phoenix Group said on Wednesday that chairman Nicholas Lyons will take a sabbatical from the group in order to take up a one-year term as Lord Mayor of the City of London. Phoenix stated Lyons' sabbatical will begin on 1 September 2022 and that he will then return to his role as chairman of the board in November 2023, subject to regulatory approval. In order to "promote clarity of leadership" during his sabbatical, Lyons will formally resign from his roles on the board.

Anglo-Australian miner Rio Tinto declared a massive final dividend as profits surge on the back of rising commodities prices. The company on Wednesday said it would pay out $16.8bn for the year as earnings before interest, tax, depreciation and amortisation rose 58% to $37.7bn for the year to December 31 on revenue of $63.5bn.

Savings, insurance and banking firm Old Mutual said on Wednesday that its operational and financial performance in 2021 had demonstrated "a strong recovery" from the impacts of the Covid-19 pandemic. Old Mutual stated the relaxation of lockdown restrictions during the current period had supported considerable growth in productivity levels across the group despite a "challenging operating environment" in all of its markets.

Medical equipment manufacturer Smith & Nephew said on Tuesday that full-year operating profits had doubled in 2021, partly driven by a solid performance in its sports medicine and ENT and advanced wound management units. S&N posted full-year revenues of $5.21bn, up 14.3% year-on-year on a reported basis and 10.3% on an underlying basis, while operating profits surged 101% to $593.0m and trading profits shot up from $683.0m to $936.0m as a result of a 300 basis point margin uplift due to improved trading impacts and discretionary cost control measures offsetting higher logistics costs.

Chilean miner Antofagasta posted a jump in full-year profit and revenue on Tuesday amid higher copper and molybdenum prices. In the year to the end of December, profit before tax including exceptional items rose 146% to $3.5bn, while earnings before interest, taxes, depreciation and amortisation increased 77% to a record $4.8bn. Revenue for the year was up 46% at $7.5bn, reflecting a 47% increase in copper realised prices and a 98% jump in molybdenum prices.

UK energy services provider John Wood Group on Tuesday said it expected to take a one-off $100m charge relating to its Aegis Poland contract as it estimates a bigger loss for the legacy Amec Foster Wheeler project. Losses at Aegis Poland, which involves the construction of buildings to house the Aegis Ashore anti-missile defence facility for the US Army Corps of Engineers, was estimated at $222m from a prior forecast of $133 million due to higher costs.

Financial services company Hargreaves Lansdown revealed on Tuesday that profits had fallen during the first half of its 2022 trading year on the back of a reduction in share-dealing revenues. In the six months ended 31 December, revenues slipped 4% to £291.1m and interim pre-tax profits and diluted earnings per share both slumped 20% to £151.2m and 25.7p, respectively as net new business contracted 28% year-on-year to £2.32bn.

Commercial property landlord Hammerson confirmed it was in talks over the possible sale of its Victoria Gate and Victoria Quarter shopping centres for £120m as it looked to strengthen its balance sheet after the Covid-pandemic. Hammerson said it was negotiating with “entities” related to Swiss property developer Redical Holdings AG.

Safety equipment maker Halma said it had bought US-based International Light Technologies for $26.6m (£19.5m). ILT makes technical lighting sources and light measurement systems, which are used in biomedical, environmental, agricultural, food and beverage, and industrial applications.

Drugmaker AstraZeneca said its Enhurtu breast cancer drug had demonstrated a "statistically significant and clinically meaningful improvement" in survival in a phase three trial versus chemotherapy. AstraZeneca stated DESTINY-Breast04 met its primary endpoint, where Enhertu demonstrated "superior" PFS in previously treated patients with HR-positive HER2-low metastatic breast cancer compared to the standard-of-care chemotherapy.

Dechra Pharmaceuticals lifted its interim dividend on Monday as it posted a jump in profit and revenue. In the six months to the end of December 2021, pre-tax profit rose 59.6% to £53.4m on revenue of £332.4m, up 15.9%. Dechra declared an interim dividend of 12p a share, up 8% on the same period a year ago.

Economic news

Russian investor VTB Capital had its London Stock Exchange membership suspended on Friday, as part of the UK’s sanctions on Russia. Reuters reported that the suspension meant the company, part of Russia’s second-largest bank VTB, would no longer be able to trade on London’s exchange.

UK car production slumped by a fifth in January as manufacturers were hit by parts shortages, a plant closure and alterations to new models, according to industry data released Friday. The Society of Motor Manufacturers and Traders (SMMT) said 68,790 cars were made during the month, the industry’s worst start to a year since 2009.

UK consumer confidence has dropped to its lowest for more than a year as households face a barrage of rising costs that will squeeze budgets, a survey showed. The GfK consumer confidence index fell 7 points in February to -26 - the lowest reading since January 2021 which was one of the worst points of the Covid-19 crisis with the UK in lockdown.

Bank of England governor Andrew Bailey insisted on Wednesday that both workers and companies must show restraint in the face of surging inflation. Households are currently facing a deepening cost of living crisis, with inflation - currently at a 30-year high - expected to peak at 7.25% in April, according to the BoE. Yet wages have failed to keep pace. In February, the Office for National Statistics said employees’ regular pay, excluding bonuses, grew by 3.7% in the final quarter of 2021. Once inflation was taken into account, however, real wages fell by 0.8%.

The government is to discuss the imposition of potentially tougher financial sanctions on Russia with key City institutions, it was reported on Wednesday. According to the Financial Times, City minister John Glen will chair the meeting, scheduled for later Wednesday afternoon. It is understood that representatives from a number of banks will attend, including Citi, Barclays, JPMorgan and NatWest, along with the Prudential Regulation Authority and the London Metal Exchange.

The UK will stop Russia from selling sovereign debt in London, foreign secretary Liz Truss confirmed on Wednesday. The Foreign Office first announced on Tuesday it had an "unprecedented package of further sanctions ready to go" should there be more "aggressive acts" against Ukraine by Russia.

Five Russian banks and three high-net worth individuals have been sanctioned by the UK after Vladimir Putin sent tanks into rebel-held regions in eastern Ukraine. The five banks are Rossiya, IS Bank, General Bank, Promsvyazbank and the Black Sea Bank. The individuals are Gennady Timchenko, an oligarch with close ties to Putin, Boris Rotenberg and Igor Rotenberg.

UK manufacturing inflation expectations have hit a high not seen since the mid-1970s, a CBI survey showed. The balance of manufacturers expecting price rises in the next three months rose to +77% in February - the highest score since December 1976, the business lobby said. The balance is the difference between respondents expecting an increase and a decline.

The UK had its first monthly budget surplus since the start of the pandemic but rising inflation caused debt interest payments to surge, official figures showed. Public sector accounts excluding public sector banks showed a surplus of £2.9bn in January, the Office for National Statistics said. The surplus was less than the £3.5bn forecast by economists and the government's fiscal watchdog.

UK retail footfall slumped last week after the severe weather kept shoppers at home, industry data showed on Monday. According to retail consultancy Springboard, footfall to all retail destinations rose 5.5% between Sunday and Thursday. But as Storm Eunice made landfall, prompting the Met Office to issue a number of rare red alerts, footfall slumped 32% on Friday and 12.6% on Saturday.

International events

US consumer confidence continued to languish near its weakest level in the past decade amid rising inflation, the results of a closely-followed survey revealed. The University of Michigan's consumer confidence index edged up from a preliminary reading of 61.7 to finish the month of February at 62.8.

A top Ukrainian official said that his country was ready for talks with the Russian Federation, including regarding the neutral status as referred to the North Atlantic Treaty Organisation. "If talks are possible, they should be held. If in Moscow they say they want to hold talks, including on neutral status, we are not afraid of this," Ukrainian presidential advisor, Mykhailo Podolyak said, according to Reuters.

The German economy contracted in the final quarter of 2021 due to rising Covid-19 cases and related restrictions, according to the German Federal Statistical Office. Gross domestic product slipped an adjusted 0.3% quarter-on-quarter, a smaller drop than the 0.7% seen at the time of the first estimate and economists' expectations.

First-time jobless claims fell at a faster than expected clip in the week ended 19 February following three consecutive weeks of increases. According to the Labor Department, 232,000 Americans filed initial jobless claims last week, down from the 248,000 reported a week earlier and slightly better than the expected print of 235,000.

Mortgage applications in the US sank 13.1% in the week ended 18 February to the lowest level since December 2019, according to the Mortgage Bankers Association. Applications to refinance a mortgage declined 15.6%, while ones to purchase a home dropped 10.1% as fixed 30-year mortgage rates increased one basis point to 4.06%.

Russia's president reportedly called for "a certain degree of demilitarisation" of Ukraine. In remarks made overnight, Vladimir Putin said that potential agreements could be "reversed in a second" if "our so-called partners continue to pump the current Kiev authorities with state-of-the-art weapons," Russia's state-owned Tass news agency reported.

The exposure of most European companies' sales and profits to Russia is "not material" but the same cannot be said of their sensitivity to higher energy costs. According to analysts at Deutsche Bank, the scant exposure of sales and profits is a reflection of the fact that the European Union's exports to the Russian Federation account for just 0.6% of the former's gross domestic product.

Some strategists are asking themselves whether an 'off ramp' from the current crisis has been missed following recent developments around Ukraine, especially Moscow's decision to recognise the entire territorial claims of Ukraine's breakaway regions. According to Michael Every at Rabobank, initial Western sanctions in response to the recognition of the Donetsk and Luhansk People's Republics were - except for Germany's move to "pause" NordStream 2 - "milquetoast".

Oil came close to touching $100 a barrel on Tuesday after Russian tanks entered Ukraine. As at 1100 GMT, global benchmark Brent crude had put on 3% at $98.29 a barrel, as fears grew that energy supplies faced significant disruption. Earlier in the session it had touched $99.50, its highest since September 2014.

Business sentiment has strengthened in Germany, a closely-watched survey showed on Tuesday, as the economy emerged from the worst of the Covid-19 pandemic. The Ifo business climate index rose to a five-month high of 98.9 in February, up from January's 96.0 and well ahead of expectations.