Retailers are in focus as markets seek direction in a big day for Greece, the eurozone and indeed the US.
Morrisons is up 4.2p at 176.7p after Tuesday’s Kantar Worldpanel report showing a rare rise in sales, as investors await confirmation as to whether or not it has kept its place in the FTSE 100.
Rival supermarkets are also in demand, with Sainsbury up 4p at 249.1p and Tesco adding 1.6p to 209.05p.
WH Smith has climbed 50p to £15.88 after positive comments on the full year outlook after sales rose 1% in the 13 weeks to the end of May, with the travel business up 8%. Tony Shiret at BESI Research said:
Today’s WH Smith interim management statement was marginally ahead of our expectation on like for like sales in both divisions...We expect that this is being accompanied by gross margin movements in line with our forecast expectation (Travel up 50 basis points in the full year, High Street up 200 basis points). Accordingly we could increase our 2015 pretax profit estimates by £1m-£2m (currently £124m versus consensus £121m). Given the materiality of the change in our case we are disinclined to do so, albeit we expect that consensus may move towards us. What matters here is direction and continuation of the trend of upgrades at WH Smith over an extended period. We also note that embedded in the overall numbers is an immature International Travel business. We have low visibility on when that business will start to achieve better profitability, but it does represent option value within a current valuation that has moved up recently to be in line with sector valuations looking out to Spring 2017 (for comparability purposes).
These figures were struck before the start of the summer peak for Travel. As we have previously commented, this should be a good period for Smith Travel benefiting from a weaker euro year on year and lower travel pricing resulting from lower year on year fuel costs. Against this the introduction of the latest Food to Go formats will start to annualise progressively from the fourth quarter. It should be born in mind that Travel has a largely variable cost base – turnover rents in travel locations probably accounting for 50%-60% of the Travel cost base.
But Dixons Carphone is down 1.9p at 477.4p despite the company raising its profit guidance after strong trading in the fourth quarter.
Overall the FTSE 100 is down 3.24 points at 6925.03 after growth in Europe’s private sector slowed a little in May. Late comes the European Central Bank’s latest pronouncements on interest rates and quantitative easing, with a press conference where it will be quizzed on Greece among other things.
As for Greece, proposals from the country and its creditors will continue to be discussed in an attempt to reach a deal before the country starts defaulting on its debts.
Investors will also be watching the US ADP jobs figures for May ahead of Friday’s non-farm payroll numbers, amid differing signs about the strength or otherwise of the US economy.
In the UK services growth has slowed, with the PMI index below expectations and the lowest since December.
Elsewhere Unilever is up 50p at £28.83 as Barclays moved from equal weight to overweight with a price target raised from £28.50 to £30.50. The bank said:
We upgrade to overweight on margin and portfolio optionalities, and favour Unilever over most other home and personal care names in what is overall a very expensive space. Our new analysis suggests that a potential pricing divergence phenomenon in the home and personal care oligopoly could help to bring back home care margin to high single digit levels, while US Refreshments seems to be a rather unsuspected drag on group earnings. And the Foods business hides more attractive segments than the struggling European spreads unit. In an expensive sector, valuation relative to peers shows no anomaly, but we feel a premium may actually be justified going forward as the portfolio improves and margins rise even if growth rates remain in line with the (decelerating) industry average.
