FTSE 100 Analysis: AO World pops on return to profit – Top UK stocks

FTSE 100 falls

The FTSE 100 is down 0.4% in early trade and on course to lose ground for a third consecutive session.

That follows on from a negative session across Asia, largely thanks to concerns about China’s economic recovery as the Caixin services PMI hit a five month low as well as rising tensions with the US after China introduced new curbs on exporting metals used in semiconductors and electric vehicles.

We have the European Central Bank’s non-monetary policy meeting today, when we will also get PMI data out from Spain, Italy, France, Germany and the wider euro area. The final UK services PMI is due out at 0930 BST. This afternoon is headlined by the release of the minutes from the last FOMC meeting as well as factory orders and economic optimism figures as US markets reopen following the July 4 holiday yesterday.

FTSE 100 outlook: Where next for the UK 100?

The UK 100, which tracks the FTSE 100, continues to follow the falling trendline lower. This has now been in play for over two months, making it a key trend to watch.

If the trendline proves too difficult to break then we could see the index drift back toward the 7,454 floor that has held firm over the past three months. A breakout becomes more likely as the range continues to narrow between this floor and the falling trendline.

Any break below the floor would risk the index falling back toward the 2023-lows we saw back in March. On the upside, a sustained break above the trendline could open the door to a return toward 7,650.

Top UK stock news

AO World is up 3.6% after it managed to return to profit in the year to the end of March despite seeing its revenue slump as the online electrical retailer focuses on earnings and cashflow. It squeezed out a pretax profit of £7.6 million in the period, turning from the £10.5 million loss we saw the year before despite revenue plunging 17% to £1.14 billion. Adjusted Ebitda of £45 million was more than double what we saw last year and was ahead of the £43.9 million forecast. It said the topline suffered as it removed non-core sales channels and stopped selling products at a loss, but admitted weaker consumer sentiment was also a factor. It said it remains confident it can grow its adjusted Ebitda margin to 5% in the short-term, having come in at 4% in the recently-ended year, and that it can return revenue to growth over the medium-term.

Redde Northgate is up 0.7% after revealing revenue rose almost 20% in the year to the end of April to £1.49 billion while pretax profit jumped almost 35% to £178.7 million. That marks a record performance for the firm, which supplies a variety of mobility services. Profits benefited from an adjustment in depreciation but still rose some 9% without this thanks to higher volumes. Underlying pretax profit of £165.9 million was just ahead of the £164.5 million forecast. The final dividend was raised 10% to 16.5p, taking the full year payout to 24.0p. ‘We continue to enjoy robust demand as we start FY2024 and our recent signing of a further multi-service outsourcing contract for Redde reflects our healthy new business pipeline. With exciting opportunities across the platform, we expect to continue to make strategic progress; together with good momentum in the business we are confident and are well-placed to continue to create long-term value for shareholders,’ said Redde Northgate.

Legal & General is down 2.1% after it provided an update on its transition to IFRS 17, a global accounting standard that was implemented at the start of 2023. The insurer said this will not impact its strategy, solvency or dividends and that its five-year plan remains unchanged. The change primarily impacts its annuity and protection businesses, which will impact the timing of when earnings are recognised. As a result, it said the transition will see it recognise a significant stock of value of some £13.6 billion, which it described as ‘future value that will unwind into profits as experience plays out in line with expectations’. It said IFRS 17 should ultimately lead to a ‘more stable and predictable operating profit profile’.

It is worth keeping an eye on mining giants like Rio Tinto, Anglo American, Antofagatsa and Ferrexpo this morning after iron ore and copper prices dropped following soft data out from China and the US. The four miners are down 1% to 1.9% this morning.

Speaking of Rio Tinto, its copper business may get more appreciation when it hosts analysts at its major Oyu Tolgoi project in Mongolia later this month, according to Morgan Stanley. The broker said the site visit should provide greater confidence about the project and wider business, with the copper unit expected to raise output by 10% over the next five years. Morgan Stanley is Overweight.

Geotechnical specialist contractor Keller Group is down 0.4% despite saying it will deliver a ‘record performance’ in the first half of 2023, leading it to say that it will deliver full year underlying operating profit ‘materially ahead of expectations’. It said the rise in earnings will, however, be limited by the rise in interest rates. It also said it has generated more cash than anticipated in the period. It confirmed it will be raising its interim dividend by 5% to 13.9p. ‘The actions we have taken to improve operational execution have resulted in an increased operating margin and a record performance in the first half of the year,’ said CEO Michael Speakman.

SIG, which supplies insulation and building products, is down over 7% today after like-for-like revenue came in flat during the first half of 2023 at £1.4 billion. The rise in prices thanks to inflation has countered lower volumes. It said market conditions remain challenging and said it saw softer demand in May and June, particularly in Germany and France. Underlying operating profit should come in around £33 million, down from the £42.5 million reported the year before. It said the timing of a recovery is uncertain but that profits should benefit from productivity gains in the second half. It said it expects annual profits to hit the low-end of the analyst’s target range of £65.3 million to £84.0 million, suggesting it will fall from the £80.2 million profit delivered in 2022.

Barclays initiated coverage on a wave of stocks this morning:

• ICG Enterprise has been given an Overweight rating and a 1,490p price target. The stock is down 1.1% at 1,365.50p this morning.
• HarbourVest Global Private Equity has been given an Overweight rating with a 2,690p price target. The stock is down 0.1% at 2,197.65p.
• Chrysalis Investments has been given an Equal-Weight recommendation with a price target of 78p. The stock is down 3.1% at 68.24p.
• Apax Global Alpha was rated at Equal-Weight with a 198p price target. The stock is down 1.5% at 182.2p today.
• Augmentum Fintech was rated at Overweight with a 132p target. The stock is down 4.2% at 96.47p.