After a downbeat end to the first three months of the year, leading shares have begin the new quarter on a better note.
The FTSE 100 finished 36.46 points higher at 6809.5, helped by better than expected eurozone manufacturing data for March (as shown by the latest purchasing managers indices). There was also solid growth in UK manufacturing, although productivity figures disappointed, coming in at the weakest level since the Second World War.
Investors also shrugged off an opening fall on Wall Street, with the Dow Jones Industrial Average down around 120 points by the time London closed. The US market was unsettled by weak ISM manufacturing numbers, as well as a worse than expected jobs figure of 189,000 in the monthly ADP employment report ahead of Friday’s non-farm payroll number. US investors are already unsettled by the uncertainty over when the Federal Reserve will raise interest rates, with American markets barely moving ahead in the first quarter compared to their European counterparts. Jasper Lawler, market analyst at CMC Markets UK, said:
When ISM manufacturing posts its first five-month decline since the 2008 financial crises, it’s time to seriously reassess a bullish outlook on the US economy. Looking at the last two quarters, it’s really just non-farm payroll employment growth that’s the one leg the Fed can stand on to justify higher interest rates.
Given the strength of job gains it would be unlikely to see a huge drop on Friday but perhaps a slowdown of momentum is overdue and this might be all that’s needed for rate-hike expectations to be drastically adjusted.
Back in the UK, mining shares were mixed despite reasonable Chinese manufacturing data, with Anglo American adding 4.5p to 1016.5p but Rio Tinto dipping 10p to £27.62.
But with gold and silver in demand, Mexican precious metals miner Fresnillo added 17.5p to 700p and Randgold Resources rose 108p to £48.01.
Banks moved higher, helped by a number of positive comments from analysts, including those at Morgan Stanley.
Barclays was 6.7p better at 249.30p while Lloyds Banking Group was lifted 1.11p to 79.39p as Jefferies moved from to hold from underperform.
Mike Ashley’s Sports Direct International rose 11.5p to 620.5p after Morgan Stanley issued a positive note on the retailing business:
We believe that Sports Direct has the potential to replicate its UK success in many (though not all) European markets. Even after discounting our valuation by 20% to reflect corporate governance issues, we think the shares are attractive and initiate with an overweight rating.
A continuing delay on a nuclear deal with Iran has pushed oil higher - Brent crude is up 3% at $56.79 a barrel - and lifted BP 5.4p to 442.1p and Royal Dutch Shell B shares 33p to £21.32.
But B&Q owner Kingfisher fell 12.6p to 368p as investors took profits after Tuesday’s share price rise in the wake of its results, which included plans to shut 60 UK stores.
FirstGroup ended 6.2p higher at 97.15p after a positive trading update, helping rival transport group Go-Ahead rise 83p to £24.13.
Lower down the market Real Good Food, which distributes sugar and manufactures baking ingredients and jams, fell 14% to 36p after warning full year figures were likely to be well below market expectations.
It blamed falling EU sugar prices which made trading difficult for its Napier Brown distribution business, as well as legal costs arising from its complaint about sugar pricing to the UK and EU competition authorities.
It said Napier Brown had a poor first half and despite an improvement in the second six months of the year, it was still below expectations. But the rest of the group had performed better than expected.
The company said it was in talks with several potential bidders for Napier Brown, and a successful deal would boost its balance sheet and give it more stable earnings in future.
Analyst Mike Foster at Hardman & Co said:
[This is] a trading update which is distinctly mixed: Napier Brown trading is poor; elsewhere is good. [But] Napier Brown – despite its current problems – is clearly drawing substantial interest. Clearly the group has a positive set of options here. The balance of the group has issued a positive trading update and is cash generative with strong margins and growth.
A “transaction” might indicate a joint venture, but of course a transaction cannot be guaranteed. Nonetheless Napier Brown is the largest EU independent sugar distributor: a great, well‐invested strategic attraction.
Should Real Good Food be able to divest itself of its sugar distributor, we calculate illustratively that free cash flow per share would equate to some 3p in 2016. This would be enhanced by lower and more consistent working capital requirements. This would accelerate the stated desire to begin future dividend payments.
Analysts at Daniel Stewart said:
Real Good Food experienced a challenging year last year due to the low sugar price. However, looking forward, the outlook is much improved, particularly if a transaction involving Napier Brown, which makes good strategic sense in our view ahead of the end of European quotas in 2017, is completed. The acquisition of Rainbow Dust Colours, the fast-growing specialist cake decoration and accessories business, in January (revenue £3m; pre-tax margin 57%) further tilts the business towards higher growth and higher margin businesses and is already opening doors for the wider Real Good Food group in a range of export markets.
Finally Quindell, the controversial insurance outsourcing group, saw its shares briefly suspended after it admitted errors in this week’s document related to its proposed £637m disposal of its legal division to Australia’s Slater & Gordon.
The profit figures relating to the disposals were understated after failing to include parts of the business which were previously included in its digital solutions division. Instead of profits of £113m for the six months to June last year, the figure should have been £130.7m.
After returning from suspension Quindell shares ended down 0.25p at 134.75p.
