London midday: FTSE boosted by retailers as Next upgrades guidance

(Sharecast News) - London stocks had pushed into the black by midday on Thursday following a lacklustre start, with retailers on the rise after well-received updates from the likes of Next and B&M. The FTSE 100 was up 0.4% at 7,613.35.

On the macro front, investors were mulling the latest reading on the UK services sector, which showed it remained in contraction territory at the end of last year.

The S&P Global/CIPS purchasing managers' index for the sector rose to 49.9 from 48.8 in November, coming in below the initial estimate of 50.0, which is also the level that separates contraction from expansion.

Around 40% of the survey panel said they expect a rise in business activity over the next 12 months, while 16% expect a decline. Survey respondents commented on squeezed disposable incomes, elevated recession risks and a housing market downturn as key factors likely to constrain demand in the year ahead.

Tim Moore, economics director at S&P Global Market Intelligence, said: "UK service providers ended the year with another downturn in new orders as strong inflationary pressures and worries about the economic outlook sapped demand.

"Overall levels of business activity fell only fractionally, despite an exceptionally challenging business environment and spending cutbacks due to cost-of-living difficulties."

In equity markets, retailer Next surged after it lifted its full-year profit guidance as it reported better-than-expected sales over the Christmas period.

In the nine weeks to 30 December, full price sales rose 4.8% versus last year. This was £66m ahead of the company's previous guidance of a 2% decline for the period. Next said that both the retail and online segments had exceeded its expectations, with retail "particularly strong". The company upgraded its full-year pre-tax profit guidance by £20m to £860m, up 4.5% on the year.

Discount retailer B&M also gained as it upgraded profit expectations and said it would pay a special dividend after a 12.3% rise in third quarter revenue. The company, with operations in the UK and France, now expects annual adjusted core earnings to be in the range of £560m-580m, ahead of current analysts' consensus estimates of £557m.

Retailers got a boost overall, with JD Sports, Primark owner AB Foods, Frasers Group and Marks & Spencer all up.

Greggs was also in focus after the bakery chain backed its full-year expectations as it posted an 18.2% jump in fourth-quarter like-for-like sales.

Russ Mould, investment director at AJ Bell, said: "The bricks and mortar retail channel is far from dead, judging by the latest round of retail sector trading updates. Next and B&M have both raised their full-year earnings guidance and Greggs has proved to be resilient in the face of weakening economic conditions.

"We're now many months into a severe cost-of-living crisis, yet the latest figures would suggest that certain retailers can still draw in the crowds if the proposition is seen to be good value for money.

"Next isn't necessarily the cheapest fashion or home retailer, but its products are considered good quality and something that will last.

"While restaurants might be suffering as more people eat from home, a £1.20 sausage roll 'on the go' is still seen as an acceptable purchase even if money is tight, hence why Greggs is standing proud.

"B&M appeals to people who want to trade down from more expensive retailers, showing that the value proposition from a pricing perspective is a winning model in the current environment. Importantly, it talks about improved gross margins and more efficient supply chains, two areas which have been problematic for the retail sector in the past year.

"Next, B&M and Greggs are united by having a presence on retail parks where business has been better than expected in general. Widespread train strikes will have prevented a lot of people from going to city centre shops, which means retail parks with their plentiful parking spaces have been the preferred alternative shopping destination.

"None of these three companies are blind to the fact that consumers are still under significant financial pressure, yet if they've been able to successfully navigate a tough end to 2022, there is good reason to suggest they could continue to keep their chins up as we move through 2023."

Elsewhere, Wizz Air, easyJet and BA and Iberia owner IAG flew higher after Ryanair lifted its profit guidance on Wednesday.

In broker note action, Prudential was hit by a downgrade to 'underperform' at Exane, while HSBC was given a leg up by an upgrade to 'buy' from 'hold' at Jefferies.

Market Movers

FTSE 100 (UKX) 7,613.35 0.37% FTSE 250 (MCX) 19,440.33 0.25% techMARK (TASX) 4,476.13 -0.02%

FTSE 100 - Risers

Next (NXT) 6,532.00p 7.12% Anglo American (AAL) 3,296.00p 3.65% Antofagasta (ANTO) 1,610.50p 3.64% Ocado Group (OCDO) 731.40p 3.42% Associated British Foods (ABF) 1,729.50p 3.41% International Consolidated Airlines Group SA (CDI) (IAG) 138.76p 3.14% JD Sports Fashion (JD.) 139.35p 3.03% Frasers Group (FRAS) 755.00p 2.58% Glencore (GLEN) 519.10p 2.47% Rolls-Royce Holdings (RR.) 103.46p 2.03%

FTSE 100 - Fallers

Pearson (PSON) 910.80p -4.57% Prudential (PRU) 1,214.00p -2.06% Croda International (CRDA) 6,616.00p -1.81% Aviva (AV.) 448.80p -1.75% GSK (GSK) 1,423.00p -1.71% Haleon (HLN) 318.05p -1.40% Airtel Africa (AAF) 117.50p -1.01% Imperial Brands (IMB) 2,084.00p -1.00% SEGRO (SGRO) 794.60p -0.95% Admiral Group (ADM) 2,205.00p -0.81%

FTSE 250 - Risers

Wizz Air Holdings (WIZZ) 2,275.00p 8.59% Darktrace (DARK) 287.70p 6.83% Bodycote (BOY) 634.50p 6.10% Watches of Switzerland Group (WOSG) 910.50p 5.57% easyJet (EZJ) 373.30p 5.24% Harbour Energy (HBR) 295.30p 4.20% Wood Group (John) (WG.) 146.70p 4.04% Hilton Food Group (HFG) 571.00p 4.01% Currys (CURY) 61.85p 3.95% Moonpig Group (MOON) 120.00p 3.81%

FTSE 250 - Fallers

RIT Capital Partners (RCP) 2,010.00p -8.64% Vesuvius (VSVS) 403.80p -4.40% Big Yellow Group (BYG) 1,158.00p -3.26% HarbourVest Global Private Equity Limited A Shs (HVPE) 2,370.00p -2.47% TBC Bank Group (TBCG) 2,140.00p -2.06% HGCapital Trust (HGT) 358.50p -2.05% Ascential (ASCL) 205.60p -1.91% Telecom Plus (TEP) 2,105.00p -1.86% Morgan Advanced Materials (MGAM) 317.00p -1.71% Hiscox Limited (DI) (HSX) 1,100.50p -1.65%