UK stocks began the third quarter on a cautious note as markets in Asia struggled to make gains and ‘safe haven’ assets such as gold and the Japanese Yen moved higher, driven by concerns that a second-half economic recovery could prove elusive.

Gold ticked up to $1,785 per ounce while Brent crude futures also moved up to $41.90 per barrel and the pound held its ground against the dollar at $1.239.

The FTSE 100 index inched 0.1% lower at 6,164 points with gains in healthcare and technology stocks offset by weakness in utilities, industrials and telecoms.

WINNERS

Supermarket chain Sainsbury’s (SBRY) was a winner, gaining 1.8% to 212p after it posted a strong first quarter trading update with grocery sales in the 16 weeks to 27 June up a record 10.5% and even general merchandise sales rising 7.2% thanks to a 10.7% increase at Argos.

On a like for like basis, excluding fuel sales which were down more than 50% due to travel restrictions, group sales were up 8.2% for the quarter.

Operating costs have risen by around £500m due to in-store safety measures and increased online demand, but new chief executive Simon Roberts expects this to be ‘broadly offset by business rates relief and stronger grocery sales’.

Shares in property company Hammerson (HMSO) were also firmer, up 2.6% to 82.3p after it unveiled a significant improvement in its liquidity position giving it breathing room ‘to focus on continued delivery of its strategy’ of asset sales to strengthen its balance sheet.

Crucially it has negotiated an amendment to the covenants on its most sensitive debt, £689m of privately placed notes, as well as drawing down £300m of its banking facility and gaining approval for up to £300m of new debt under the government’s Covid financing scheme.

The firm also revealed that rent collections were at 73% in the UK in the first half and it expected collection rates ‘to improve materially’ over the rest of the year.

Asset manager Liontrust (LIO) announced that it had agreed to buy Architas Multi-Manager Limited from French insurer Axa for up to £75 million, to be funded by the issue of 5 million new shares at £13 per share.

Architas’s award-winning UK business has £5.6 billion of assets under management or administration (AuMA) across 25 funds and generated net inflows of £117 million in the first half of this year.

Meanwhile Liontrust itself posted net inflows of £901 million in the second quarter to 19 June bringing its AuMA to £19.38 billion. Shares climbed 3.6% to £13.52

LOSERS

Infrastructure firm Kier Group (KIE) provided a reasonably upbeat view of trading over the last quarter with the majority of its sites now open and orders continuing to roll in.

Chief executive Andrew Davies described the firm’s performance as ‘resilient’ as it continued working on big infrastructure projects, most of which are funded by central government or regulated utilities.

As of the end of May the order book stood at around £7.6bn, and the firm hopes to be in line for some of the £1.5bn programme to upgrade schools announced by the government earlier this week.

However, investors disliked the fact that lower revenues have meant a fall in working capital inflow and an increase in the group’s average month-end debt to around £440 million. The shares fell 9.7% to 88p.

Shares in travel retail operator SSP Group (SSPG) dropped 4.5% to 245p after it posted a downbeat trading update for the last three months and announced a reorganisation of its UK business which could lead to up to 5,000 redundancies.

Sales improved marginally in June but were still down 90% on last year with UK rail passenger numbers still down 85% and most of its UK airport outlets still closed.

While short-haul flights may pick up this month, the firm has decided that the long term outlook for its UK business has changed significantly for the worse and therefore it needs to ‘simplify and reshape’ its domestic operations.

 

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Issue Date: 01 Jul 2020