UK stocks opened higher on Tuesday lifted by positive earnings reports and the recent spate of takeover deals. In total the value of global merger and acquisition (M&A) deals this month is approaching $150bn, the best level in almost a year, suggesting companies are becoming more confident in their outlook.

On the currency markets the pound resumed its upward trend against the dollar topping $1.2870 while in the energy markets Brent crude oil futures stabilised around the $37 level. Meanwhile gold and silver prices climbed to $1,965 and $27.40 per ounce, respectively.

The FTSE 100 index added 15 points or 0.25% to 6,041 led by retail and consumer stocks while the mid-cap FTSE 250 added 74 points or 0.4% to 17,751 thanks to gains in industrial stocks.

ONLINE GROWTH

Online grocery delivery firm Ocado (OCDO) reported a 52% rise in revenues in the third quarter to 30 August, marking a further acceleration from the second quarter growth rate of 40% as more customers switched to buying groceries online.

There was also positive news on sales of Marks & Spencer (MKS) products on Ocado’s retail platform with 98% of customers buying M&S goods. According to Melanie Smith, chief executive of Ocado Retail, ‘Excitement around the launch of M&S products has increased the average basket by around five items and is driving strong forward demand including our biggest ever forward order day, on the day of launch’.

The firm raised its forecast for full year group earnings before interest, taxes, depreciation and amortisation (EBITDA) to at least £40 million compared with the analyst consensus of £26 million and a top estimate of £34 million.

Ocado shares topped the list of FTSE risers adding 3.8% to £24.43 while M&S shares gained 5% to 110p.

EARNINGS RECOVERY

Bus and rail firm FirstGroup (FGP) reported a stronger than expected financial performance for the five months to the end of August ‘driven by better revenue recovery and strong cost control.’

The company now expects to post a small adjusted operating profit for the first half along with a net debt/EBITDA position of just two times, well within its September banking covenants.

Meanwhile it has seen ‘significant interest’ from potential buyers for its North American businesses as it seeks to rationalise its portfolio. Shares jumped 11% to 45.4p.

Building materials group Marshalls (MSLH) reported a big hit to revenues and earnings in the first half to June, with operating profits before restructuring costs falling to just £3.5 million from £39 million a year ago.

However, trading has improved with revenues in August back to prior-year levels and all manufacturing sites now open. Meanwhile, the firm has completed its restructuring programme and expects to reduce its fixed costs by some £12 million per year on top of operational efficiencies. Shares added 0.4% to 675p.

Environmental products group Polypipe (PLP) also posted a big fall in first half revenues and earnings followed by a sharp recovery in July and August with the business ‘tracking well ahead’ of the operating scenario set out in May.

The firm said it was ‘encouraged by the trading performance so far’ and the medium-term fundamentals in its markets remain ‘as strong as ever’, although in order to conserve cash it would pass on the interim dividend and take a decision on the final dividend next May. Shares responded positively, gaining 11% to 454p.

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Issue Date: 15 Sep 2020