FTSE 100 Analysis: Blue-chips sink to 3-month low – Top UK stocks

FTSE 100 falls

The FTSE 100 is down 0.8% this morning, with the blue-chip index trading at its lowest level in over three months.

That is following on from a negative session is Asia, with global stocks responding negatively to the release of the minutes from the Federal Reserve’s last meeting that reaffirmed its hawkish stance and reinforcing the idea more rate hikes are to come. The minutes revealed the decision to leave rates unchanged last month was not a unanimous decision.

Attention is now turning to US labour data, with ADP employment, initial jobless claims and JOLTS job openings all pencilled-in this afternoon ahead of non-farm payrolls tomorrow. We also have PMI figures and balance of trade numbers out today before the president of the Federal Reserve of Dallas, Lorie Logan, speaks this afternoon.

The UK economic calendar is headlined by the S&P Global/CIPS construction PMI out this morning. The euro area will be looking to retail sales.

US-China relations remain in focus after China introduced curbs on exports of key metals needed for high-tech applications, just before US treasury secretary Janet Yellen visits China for a three-day trip.

FTSE 100 analysis: Where next for the UK 100?

We saw the UK 100, which tracks the FTSE 100, break below the 7,454 floor that held firm in both May and June yesterday, with the index continuing to lose ground today.

The index is now barrelling toward the 2023-lows we saw back in March. This could see it drift toward 7,334 and then possibly toward the closing low set on March 17 of 7,314.

Recapturing the 7,454 floor is the immediate upside goal before it can attempt to break above the falling trendline that can be traced back to April. Keep an eye on the RSI as the heavy losses seen this week are pushing it toward oversold territory.

Top UK stock news

Currys is down 8.4% after it said it will not pay a final dividend for the recently-ended financial year as the economic outlook is uncertain. That came as the retailer revealed adjusted profits dropped 38% in the year to April 29 to £119 million, but that this came in at the top end of its guidance range and beat the £114.1 million forecast by analysts. That was the result of a 6% drop in revenue to £9.5 billion, with like-for-likes down 7%. Profits improved markedly in the UK and Ireland as adjusted Ebit jumped 45%, but this was countered by a ‘very challenging year’ for the Nordics, where earnings slumped 82%! Greece also struggled with earnings down 14%. The retailer reported a loss at the bottom-line of £450 million compared to a £126 million profit the year before. Currys said trading has been in-line with expectations since the start of the new financial year but warned the economic outlook is uncertain. That has prompted it to focus on cutting costs and capital expenditure (which will be cut 25% this year) to boost cashflow. The long-term goal is to deliver an Ebit margin of 3%, having come in at 2.3% over the last 12 months.

Jet2 is down over 10% after reporting results and revealing executive chairman Philip Meeson is stepping down. Meeson bought the company back in 1983 and will move to the role as non-executive chairman until a successor is found. The airline said revenue jumped 40% in the year to the end of March to £5.03 billion and that it swung to a pretax profit of £371 million from a £388.8 million loss the year before as the recovery from the pandemic continues. The comeback has allowed Jet2 to pay a final dividend of 8p per share. It said it is selling 7.5% more seats for this summer compared to what we saw in 2022, underpinned by a revival in those taking package holidays that earn the firm higher margins.

Workspace is down 3.4% after it said enquiries, viewings and lettings were all lower in the first quarter compared to a year ago as demand for office space continues to be tested in the current environment. Still, like-for-like occupancy rates were stable at 89.2% and the like-for-like rent roll increased 3.2% to £103.6 million. Workspace said it handled 260 new lettings to bring in annual rent of around £7 million in the quarter, which it said shows demand is ‘resilient’.

Polymer producer Victrex is down 2.3% after it said revenue was down 23% in the third quarter as it continues to come up against tough comparatives from the record performance we saw last year, which has since seen customers destock and led to a weaker demand environment. Volumes were down 38% but better asking prices helped soften the blow. It said the fall was mostly driven by softer demand in end markets of electronics, value added resellers and energy and industrial. Aerospace and automotive sales performed better, while medical was strong. It reiterated its ambition to deliver annual adjusted pretax profit of around £80 million to £85 million. ‘As we move into the final quarter, strong average selling prices, mix, energy costs and cost discipline remain supportive, and we continue to be well-placed for when the macro-economic environment improves,’ said CEO Jakob Sigurdsson.

Robert Walters is down 2.9% after it warned that confidence is yet to return to the market as the specialist recruiter revealed revenue was down 11% in the second quarter at £99.9 million. Europe grew 3% but this was more than offset by double-digit growth elsewhere, with the UK down 21%! Tough comparatives from last year didn’t help but it admitted that global market uncertainty is ‘continuing to impact both candidate and client confidence’. ‘As reported in our June trading update, candidate confidence and time to hire are not yet showing the anticipated signs of sustained improvement. Structural recruitment market fundamentals including job vacancy levels, salary inflation and candidate shortages are still holding strong which continues to suggest that when market confidence recovers there will likely be an increase in demand and candidate movement across all areas of recruitment,’ said CEO Toby Fowlston.

 Ferrexpo is down 2.6% as it said it continues to produce iron ore pellets even as the war in Ukraine continues to make things extremely challenging for the mining firm. It said a first production line has stabilised and that a second one has started contributing to output, leading to an 18% sequential rise in production in the second quarter. Ferrexpo continues to focus on producing higher-grade pellets. Sales were up 45% from the previous quarter as it worked through some inventory. It said these will be the only two production lines in use this year.

Oil giants BP and Shell are 0.4% and 1%, respectively. The recent rally in oil prices, underpinned by extended production cuts by Saudi Arabia and Russia, is stalling today and they are feeling the pressure after US rival Exxon Mobil warned earnings will be hit by about $4 billion in the second quarter by lower natural gas prices and weaker refining margins.

National Grid is up 0.4% ahead of an investor event in London today to talk about its UK electricity distribution business, which accounts for about 20% of its regulated assets. It is planning to raise investment over the current five-year price control period by 30% to £7.5 billion compared to what was spent in the last control period. This will include connecting new renewable energy generation capacity, adding 1.5 million electric vehicle chargers and up to 600,000 heat pumps.

Just Group is down 0.7% after announcing it has appointed Mark Godson as its new chief financial officer. He will take on his role at the start of 2024, succeeding Andy Parsons who is retiring at the end of this year. Godson is currently a partner at EY.

LondonMetric Property is down 0.4% after it said it has sold five assets for £42.8 million, generating a net initial yield of 4.5%. The prices secured were in-line with the book value at the end of March. The assets sold include a commercial space used by The Range and Lidl, three urban warehouses in Croydon and a property near London Bridge. ‘We continue to see good liquidity for our assets at prices in line with current book values. These sales further reduce our floating rate debt which is now only £35 million and represents just 4% of total drawn debt. This will have a positive impact on our earnings as well as further reduce our loan to value,’ said CEO Andrew Jones.

Pantheon International said its net asset value sat at 462.4p at the end of May, up 2.1% from where it was at the end of April and some 2.4% higher than a year earlier. That was mostly driven by valuation gains. The stock is up 2.3% this morning.

Virgin Wines is flat after signing a new strategic partnership with WH Smith, which will see a range of curated wines offered in 39 retail outlets in train stations and airports.

Smiths Group has been upgraded to Sector Perform by RBC, which raised its target price on the stock to 1,775p from 1,650p. The stock is down 0.7% at 1,596.50p today.

JPMorgan provided an update on its view of the paper packing industry this morning, leading to upgrades for Mondi and Smurfit Kappa. The broker said valuation multiples are at the trough and that earnings should bottom-out in 2024, but that a slower recover is already priced-in. Mondi is up 0.7% and Smurfit Kappa is up 0.5%.

United Utilities has been upgraded to Overweight by Morgan Stanley, sending the water utility up 2.5% today.

Rio Tinto has been raised to Hold by Liberum, with the miner’s London-listed shares down 1.4% today.

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