BUSINESS LIVE: Markets await BoE interest rate decision; Currys slashes profit forecast; Renewables demand lifts Drax expectations By Live Commentary Published: 07:34, 15 December 2022 | Updated: 08:42, 15 December 2022 e-mail 1 View comments The FTSE 100 is down 0.8 per cent in early trading. Among the companies with reports and trading updates today are Currys, Drax, Serco, Asos and RWS. Read the Thursday 15 December Business Live blog below. > If you are using our app or a third-party site click here to read Business Live Harry Wise Host commentator Mike Sheen Host commentator 08:40 Serco lifts guidance but shares drop 2% on headwinds Head of investment at Interactive Investor Victoria Scholar: ‘Serco forecasts 2022 revenue to come in at £4.5 billion, slightly ahead of 2021 levels and ahead of its previous estimate for £4.3-4.4 billion. The outsourcer also raised its full-year underlying trading profit guidance from £230 million to £235 million. ‘Plus, in 2023 it expects revenue of at least £4.6 billion but profit to come in around 2022 levels amid rising costs. In September, Serco acquired Swiss-based specialist immigration services provider ORS. ‘Shares in Serco have gained more than 10% year-to-date, outperforming the FTSE 100 which is less than 1% lower since the start of January. In the first half of the year, it performed better than expected thanks to more immigration contracts. ‘However like many businesses it is facing headwinds from inflation with costs on the rise. Plus, having enjoyed strong demand for Covid related services during the pandemic, Serco has seen this tailwind taper off over the last year.’ 08:27 Market open: FTSE 100 down 0.5%; FTSE 250 off 0.7% The FTSE 100 is down 0.5 per cent in early trading, dragged down by banks and energy firms, while traders avoided bets on risky assets ahead of this afternoon’s Bank of England monetary policy decision. The BoE is expected to announce a rate hike of 50 basis points at 12pm. Energy stocks are down 0.5 per cent as crude prices slid after the US Federal Reserve said it would continue raising interest rates, while disappointing Chinese factory data piled onto demand worries. Banks are down 1.1 per cent, bogged down by a 1.5 per cent drop in HSBC after a few Hong Kong-based investors sought support for a resolution, at the lender’s 2023 annual meeting, to restore the bank’s pre-pandemic dividend and spin off assets. Among bright spots, British American Tobacco has climbed 0.6 per cent on Swiss media reports of the closure of a cigarette manufacturing plant in Switzerland next year. 08:20 Are we nearly there yet? When will interest rates peak and how high? Interest rates are set to rise again today, most likely with 0.5 per cent added to take the base rate to 3.5 per cent. It’s a mark of how dramatic the shift in sentiment has been this year that a move of that size will be considered relatively restrained by the Bank of England. Are we nearly there yet? When will interest rates peak and how high? Central banks have performed a screeching U-turn and dramatically hiked rates, but we might now be getting closer to a lower peak than recently thought. This is Money 08:10 Currys posts ‘ugly numbers’ as international business underperforms Head of markets at Interactive Investor Richard Hunter: ‘Despite Currys having made some progress on its UK operations, there is little dressing up some ugly numbers within the release. ‘At the headline level, a goodwill impairment of £511 million arising from the previous Dixons Carphone merger was recognised, resulting in a pre-tax loss of £548 million as compared to a profit of £48 million the year previous. However, even stripping this out on an adjusted basis, pre-tax profit still declined by 17% in the period. ‘The International business, which currently accounts for 49% of overall revenues, is the main culprit. In the Nordics region in particular (42% of overall revenues), new entrants to the space have relied on heavy discounting of goods to announce their arrival, partly driven by excess stock which they are now selling at basement (and virtually unprofitable) prices. In turn, Currys has had to react by eroding its margins, and a decline of 94% in earnings over the period is the resultant outcome. ‘More positively for that region, Currys considers the situation to be temporary, on the basis that the level of discounting is simply not sustainable. It points to a region which is healthy and wealthy, and where its presence has a long track record of growth in sales and profit, such that when the market normalises, the return to profitability will be marked. ‘UK sales account for 51% of overall revenues, and the picture painted here is rather more promising. The previously announced cost savings target of £300 million is on track, allowing the group to absorb some of the inflationary pressures being faced. Adjusted profit rose by 25% in the period, and the group’s Omnichannel strategy is bearing fruit, remaining something of a competitive advantage. ‘The ability for consumers to take face-to-face advice from experts is a primary reason for the group making two-thirds of its sales in store, yet without impacting on an online market share which remains largely intact at 32%. The model also promotes the ability to cross-sell and upsell some of its other offerings, such as recycling, Care and Repair and the provision of credit services. ‘At a group level, Currys retains some flexibility with access to credit facilities of £676 million, despite a swing to a net debt position of £105 million. Operating cash flow has also taken a hit of 54%, but the overall health of the balance sheet has allowed the dividend to be maintained, where a yield of 4.8% is a strong attraction to income-seekers. Even so, the company has reduced its outlook for full-year pre-tax profit to be in the region of £100 to £125 million, from a previous range of £130-150 million. ‘Even prior to today’s negative response to the update, the share price reaction to the challenges on the table had been a decline of 47% over the last year, as compared to a drop of 15% for the wider FTSE250. There are pockets of hope, particularly in the UK business, although the timing of a normalisation in the Nordic markets is difficult to predict. The company is therefore remaining cautious about the immediate outlook, which is line with a divided market consensus of a hold, indicating that investors are not quite ready to buy in to any recovery story.’ 07:58 Serco lifts profit forecast Serco Group has raised its 2022 profit and revenue outlook, and said it expects revenue to rise slightly the following year as well, boosted by volume growth in existing contracts and acquisitions of new businesses. The outsourcing company now expects to report 2022 revenue of around £4.5billion and underlying trading profit of roughly £235million. It previously expected profit of nearly £230million on revenue of £4.3billion to £4.4billion. 07:54 Zara feels the Marta effect as founder’s daughter sends profits soaring by a quarter Zara’s profits are soaring as the fashion business prospers under Marta Ortega Perez’s leadership. Profit in the first nine months of 2022 jumped by a quarter to £3.4billion. Sales rose by a fifth to £20billion as shoppers snapped up its autumn and winter ranges. The barnstorming results come despite owner Inditex pushing up prices by an average of 5 per cent this year. Zara feels Marta effect as founder’s daughter sends profits soaring Zara owner Inditex said profit in the first nine months of 2022 jumped by a quarter to £3.4bn under the leadership of Marta Ortega Perez. (pictured). This is Money 07:46 Renewables demand lifts Drax expectations British power generator Drax now expects full-year core profit slightly above analysts’ expectations after benefiting from strong demand for renewable power. Drax Group CEO Will Gardiner said: ‘Drax plays a critical role in supporting the UK energy system, generating more renewable power by output than any other company. During the difficult winter ahead, we will continue to optimise our biomass operations to ensure that more renewable power is available, when the country needs it most. ‘A s governments around the world increasingly look to introduce supportive policies for carbon removals, Drax is considering more exciting global opportunities for deployment of BECCS, advancing our ambition to be a leader in this critical technology. ‘Drax is a growing, international business at the heart of the green energy transition and we are accelerating our plans to invest billions of pounds in critical renewable energy and carbon removal technologies which could create thousands of jobs and generate the secure, renewable power that this planet urgently needs.’ 07:43 Inflation still a threat, says cautious Federal Reserve boss Powell: US interest rates go up – but only by half a point The chairman of the US Federal Reserve last night signalled that the fight against inflation was not yet over even as it decided to slow the pace of interest rate rises. Jerome Powell said there was ‘more work to do’ as it increased rates – as expected – by half a percentage point. Markets see-sawed – with Wall Street stocks initially falling and the dollar rising before mainly retracing their moves as Powell addressed a press conference following the announcement. US interest rates go up – but only by half a point Federal Reserve Chairman Jerome Powell (pictured) said there was ‘more work to do’ as it increased rates – as expected – by half a percentage point. This is Money 07:43 ‘Currys has missed the mark across the board’ Joshua Warner, market analyst at City Index: ‘Currys has missed the mark across the board. Like-for-like sales were down 8% in the first half, and it sank to an adjusted pretax loss of £17 million – which was disappointing considering analysts had forecast a 6% drop in sales and expected Currys to eke out a tiny profit. ‘The company is finding life much more difficult now as consumers pullback spending on discretionary items amid the cost-of-living crisis and the as the boom in demand for electronics and tech seen during the pandemic continues to fade. ‘That has also prompted Currys to cut its full year outlook this morning, with the retailer now targeting profit of £100million to £125million, down from its previous target range of £130million to £150million. ‘The core UK & Ireland operation delivered bottom-line growth and profits are still higher than before the pandemic. However, Currys blamed its international arm for the performance as it has been dragged into a price war with rivals. Lower demand has left the industry saddled with excess stock that it is now aggressively discounting to shift, which is crimping margins across the board.’ 07:41 Currys slashes profit forecast Currys has cut its annual profit outlook after reporting a half-year loss, as a deepening cost-of-living crisis forces customers to cut down on non-essential spending. The electricals retailer posted an adjusted pre-tax loss of £17million for the six months ended 29 October, compared to a profit of £48million a year earlier. 07:40 How much will the Bank of England hike interest rates by today? Slowing inflation boosts expectations of a 0.5% rise to 3.5% A bigger-than-expected fall in consumer price inflation has boosted market expectations that the Bank of England will opt for a smaller base rate hike on Thursday. Office for National Statistics Data on Wednesday showed annual CPI fell from October’s 41-year high of 11.1 per cent to 10.7 per cent, prompting cautious optimism that the worst of price pressures are over and inflation has now peaked. The City had already been anticipating a 50 basis points (bps) rise from tomorrow’s Monetary Policy Committee decision, adding 0.5 per cent to take base rate from 3 per cent ro 3.5 per cent. This is down from the 75bps base rate hike at the November meeting , and the ONS figures have buoyed this conviction. Slowing inflation boosts expectations of a 50bps interest rate hike Annual CPI fell from October’s 41-year high of 11.1 per cent to 10.7 per cent, ahead of the Bank of England rate decision tomorrow. 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Published on : 2022-12-15 07:58:33
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