TOP NEWS SUMMARY: UK set to end ban on fracking; ECB set to hike rates – Morningstar

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(Alliance News) – The following is a summary of top news stories Thursday.
Lloyd’s of London reported a steep loss in the first half of 2022, but boasted of its best underwriting result in years, and expects a turnaround in performance in 2023. The insurance and reinsurance market reported a pretax loss of GBP1.8 billion in the six months to June 30, sinking from a GBP1.4 billion profit the year before. Lloyd’s pinned this on unrealised mark-to-market losses. It recorded a GBP3.1 billion net investment loss, reversed from a GBP600 million gain the year prior. “As investment maturities are short dated, the market will begin to benefit from higher interest rates in 2023 and therefore improved investment returns,” Lloyd’s said. The market’s combined ratio improved to 91.4% from 92.2%, sending its underwriting profit higher to GBP1.2 billion from GBP960 million. Any combined ratio under 100% indicates an underwriting profit. “Rising interest rates, while prompting an unrealised investment loss on paper at the half year, will be good news for insurers in the long term as returns on assets strengthen in 2023 and beyond,” Chief Executive John Neal said. Lloyd’s noted it has set aside GBP1.1 billion net of reinsurance for customers hurt by the conflict in Ukraine.
Melrose Industries said its first-half performance was at the top end of expectations, as it unveiled plans to break up UK engineering firm GKN. The industrial turnaround specialist has decided to separate GKN Automotive and GKN Powder Metallurgy, to form DemergerCo. The new business will then seek admission to the London Stock Exchange. Melrose will retain GKN Aerospace. Melrose said the new listed firm will be an “automotive platform”. In the six months to June 30, Melrose group pretax loss widened to GBP358 million from the GBP275 million loss reported a year prior. Revenue in the first half increased by 4.7% to GBP3.59 billion from GBP3.43 billion. Adjusted for its equity accounted investments, pretax profit rose 12% to GBP128 million from GBP114 million, and revenue was up 4.3% to GBP3.88 billion from GBP3.72 billion. Melrose declared an interim dividend of 0.825 pence per share, growing 10% from the 0.75p paid to shareholders last year. The company added: “Melrose’s successful ‘buy, improve, sell’ strategy will also continue unchanged, and the board expects to pursue future acquisitions as soon as possible post-demerger. These could either be in aerospace or the wider industrial sector, as appropriate.”
Associated British Foods said it expects to report a strong performance for its current financial year through a mix of price and volume increases in its Food business and Primark benefitting from the lifting of Covid restrictions. However, shares in AB Foods dropped as it warned of a lower profit in the next financial year, as Primark expects a squeeze in margins owing to a hike in costs. For the 52 weeks ending September 17, the London-based clothing, homeware and food retailer said in an unscheduled trading update that its outlook remains unchanged, with revenue expected to be “well ahead” of the GBP13.88 billion reported for the year before.Looking further ahead, however, although the next financial year is anticipated to produce significant sales growth, AB Foods expects adjusted operating profit to be lower compared to the current financial year. This is mainly due to the commercial decision by Primark to limit further price increases, as well as taking action to mitigate input cost inflation and rising energy costs.
DCC said its Healthcare unit has agreed to buy Medi-Globe Technologies, the unit’s largest acquisition to date. Medi-Globe is a medical devices business focused on minimally invasive procedures. Its products are sold to hospitals and procurement organisations in over 120 countries through direct sales operations in Germany, France, Austria, Netherlands, Czechia and Brazil; and an international network of distributors. The sales, marketing, and support services company said Medi-Globe will join the DCC Vital group, a distributor of medical products to the hospital, community and primary care sectors in the UK and Ireland. It explained that the acquisition is based on an enterprise value of around EUR245 million on a cash-free, debt-free basis.
Darktrace said it swung to an annual profit and saw strong revenue growth across all geographies, leading the cybersecurity firm to confirm its expectations for the coming financial year. However, Darktrace also announced the termination of takeover talks with Thoma Bravo. In the financial year that ended on June 30, the Cambridge-based company swung to a pretax profit of USD5.3 million from a loss of USD143.9 million the previous year. Revenue jumped by 46% to USD415.5 million from USD285.1 million. Darktrace confirmed its financial 2023 guidance, saying it is “confident” in the company’s future prospects. Darktrace said discussions about a takeover offer from Thoma Bravo have been terminated, after Thoma Bravo said it doesn’t intend to make an offer. In early August, Darktrace announced it was in early stages of discussions with the Chicago, Illinois-based private equity firm on a possible cash offer. Thoma Bravo had until Monday next week to make a firm offer.
Vistry reported an “excellent” first-half performance that “significantly” exceeded its expectations at the start of the year, as it lifted its payout by 15%. In the six months that ended on June 30, the Kent, England-based housebuilder said pretax profit fell 29% to GBP111.3 million from GBP156.2 million a year before. The firm cited GBP71.4 million in additional fire safety provisions as behind decline in profit. On an adjusted basis, which strips out the provisions, pretax profit rose 14% to GBP189.9 million. This figure was ahead of internal expectations, it said. Vistry declared an interim dividend of 23 pence per share, up 15% from 20p a year prior.
Netflix is looking at various ways to trim its outgoings as it struggles with slow subscriber growth, the Wall Street Journal reported. Among the options Netflix is considering includes scaling back its real estate footprint and tightening cloud computing costs. It is also mulling hiring more junior staff and keeping a lid on corporate swag – items such as promotional products, the WSJ reported. In July, Netflix reported a loss of 970,000 global paid subscribers in the second quarter, having shed 200,000 subscribers in the first quarter. Netflix, long considered the leader in streaming, has faced increased competition from the likes of Walt Disney and in recent years.
Apple launched new smartphones at prices similar to recent models despite inflation and supply chain woes, while unveiling a premium digital watch with a price tag to match. While a 90-minute presentation at the company’s California headquarters did not include any surprise reveals, the tech giant did unveil new digital identification system to obviate the need for a physical sim card. The company’s newest smartphone, the iPhone 14, costs USD799 for the base model – the same price as the current version, while a premium iPhone 14 Pro Max will go for USD1,100. The set of updated products, which also includes new earbuds, is designed to keep customers loyal to its lucrative technology ecosystem.
The dollar was lower and European stock markets were narrowly mixed on Thursday, ahead of a policy decision by the European Central Bank. The euro was sitting at parity with the dollar ahead of the announcement, due at 1215 GMT. The ECB is set to carry out just its second interest rate hike in over 10 years – though second in a row – with a half- to three-quarters of a percentage point rise. The monetary policy announcement will be followed by a press conference with ECB President Christine Lagarde at 1245 GMT.
“The ECB is likely to raise rates by 75bp at today’s meeting, 50bp at the next one and 25bp after that, taking rates to 1.5% by year’s end,” said Kit Juckes at Societe Generale. “There seems universal agreement that higher rates are required to prevent higher inflation becoming embedded, though President Putin is creating a lot of slack in the European economy already.”
CAC 40: up 0.3% at 6,125.54
DAX 40: down 0.2% at 12,888.34
FTSE 100: up 0.3% at 7,256.65
Hang Seng: closed down 1.0% at 18,854.62
Nikkei 225: closed up 2.3% at 28,065.28
S&P/ASX 200: closed up 1.8% at 6,848.70
DJIA: called down 0.1%
S&P 500: called down 0.1%
Nasdaq Composite: called down 0.1%
EUR: up at USD1.0000 (USD0.9945)
GBP: up at USD1.1492 (USD1.1469)
USD: down at JPY143.90 (JPY144.45)
GOLD: up at USD1,721.01 per ounce (USD1,711.32)
OIL (Brent): down at USD87.47 a barrel (USD89.34)
(currency and commodities changes since previous London equities close)
Liz Truss is expected to lift the ban on fracking in the UK as she sets out measures to shield households and businesses from soaring energy bills. In her first major policy intervention as UK prime minister, Truss is expected to tell members of Parliament on Thursday that domestic energy bills will be frozen at around GBP2,500 as part of a package to ease the cost-of-living crunch which will cost an estimated GBP150 billion. The guarantee on energy costs, which is aimed at saving families and businesses from financial ruin if bills continue to rise as predicted, will be funded by increased borrowing after Ms Truss rejected calls for a windfall tax on oil and gas producers. Downing Street has indicated Truss will end the moratorium on fracking – the process of extracting shale gas by fracturing rocks with high-pressure water.
UK homebuyer inquiries fell in August at the steepest rate since the early stages of the coronavirus pandemic as the cost-of-living crisis and wider economic challenges affected market conditions, according to surveyors. The Royal Institution of Chartered Surveyors said a net balance of 39% of property professionals reported a fall rather than a rise in new buyer inquiries in August, marking the sharpest downturn since April 2020. New buyer inquiries have now been falling for four months in a row. House sales were also down in August, falling for five months in a row, with the latest feedback implying this downward trend is becoming further entrenched, Rics said.
France’s trade deficit widened in July, due to the energy balance, the Ministry of Economics & Finance said. The deficit was EUR14.5 billion in July, widened sharply from EUR13.1 billion in June. Exports slipped 2.4% to EUR48.7 billion from EUR49.9 billion, while imports nudged up 0.5% to EUR63.3 from EUR63.0 billion. Separate data showed private payroll employment increased by 0.5% in the second quarter of 2022, ticking up from a rise of 0.4% in the first quarter of the year.
Australia’s trade surplus fell in July as exports declined, data from the Australia Bureau of Statistics showed. The country’s seasonally-adjusted surplus on goods and services dropped to AUD8.73 billion – around USD5.88 billion – from AUD17.13 billion in June. This was due to exports falling 9.9% month-on-month to AUD55.28 billion from AUD61.36 billion, “driven by falls in coal, coke and briquettes and Metals ores and minerals.” Meanwhile, imports rose 5.2% to AUD46.55 billion from AUD44.23 billion.
Japan’s economy grew slightly more than expected in the second quarter of 2022, data from the Cabinet Office showed. Gross domestic product grew 0.9% quarter-on-quarter for the three months ended June 30, above the 0.5% increase initially estimated. This reversed a 0.1% decline in the first quarter of the year. On an annualised basis, GDP rose 3.5% in the second quarter, a significant upgrade from the initial 2.2% increase reported.
Prospects for the US economy are flagging as high prices have forced Americans to focus more of their spending on staples and demand is expected to weaken further, according to a Federal Reserve report. The US central bank has been raising interest rates aggressively to cool demand in a bid to tamp down inflation that has reached the highest in more than 40 years, all while hoping to avoid pushing the world’s largest economy into a downturn. Recession fears remain fairly widespread, but there are signs that wage and price pressures are beginning to ease, according to the Fed’s latest “beige book” survey of economic conditions.
The US central bank will stay the course on its aggressive fight against high inflation for “as long as it takes” to bring prices down, a top Federal Reserve official said Wednesday. Echoing comments from other leading policymakers, Fed Vice Chair Lael Brainard highlighted the message that the central bank has no plans to pivot or lower interest rates any time soon. “We are in this for as long as it takes to get inflation down,” Brainard said in a speech prepared for delivery to a conference in New York, as she acknowledged that the pain of high prices is felt more severely by lower income families.
The Chinese megacity of Chengdu has extended a Covid-19 lockdown in most areas, maintaining curbs that have ground business to a halt and confined the majority of its 21 million residents to their homes. China is the last major economy welded to a zero-Covid strategy, tamping down virus flare-ups through a combination of snap lockdowns, mass testing and lengthy quarantines. Chengdu, the capital of southwestern Sichuan province, has been effectively under lockdown for a week since reporting several hundred Covid cases. The measure was expected to be lifted on Wednesday, but the city government said in a notice that “the entire city will continue to deeply push forward our assault for zero community spread”. Authorities would “strive hard for a week to realise the goal of zero community transmission in the whole city”, the government added.
Russian President Vladimir Putin said it was “impossible” to isolate Moscow and vowed to cut gas and oil deliveries to countries imposing a price cap on supplies. Speaking at an economic forum, over six months after Moscow sent troops into Ukraine, the Russian leader sought to pivot towards allies in Asia, the Middle East and Africa as his country faces a barrage of Western sanctions. “No matter how much someone would like to isolate Russia, it is impossible to do this,” Putin told the Eastern Economic Forum in Russia’s Pacific port city of Vladivostok.
Ukrainian President Volodymyr Zelensky on Wednesday said Kyiv troops have recaptured from Russian forces several settlements in the Kharkiv region in the country’s northeast. “This week we have good news from Kharkiv region,” Zelensky said in his daily address, adding that “now is not the right time to name those settlements, where the Ukrainian flag has returned”. Observers have reported a breakthrough by Ukrainian forces in the Kharkiv region in recent days, with no official confirmation of the potential gains. The US on Thursday approved another USD2 billion in loans and grants for Ukraine and its neighbors to buy US military equipment, the State Department said. The new aid from the Foreign Military Funding program is in addition to USD675 million in fresh direct aid to Ukraine announced earlier Thursday by Defense Secretary Lloyd Austin.
By Tom Waite;
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