After the recent rally ran out of steam, stocks are motoring again toward multi-month highs.
A recovery for airlines and stocks with most to gain from the re-opening of the UK economy kept the London market on the front foot today, despite setbacks for Intertek (LSE:ITRK) and Pennon (LSE:PNN).
There was also a big fall for shares in high-flying retailer Pets at Home (LSE:PETS), which dropped back 6% in the FTSE 250 index after publishing a robust set of half-year results.
The overall mood, however, was still one of optimism after yesterday's positive vaccine update from AstraZeneca (LSE:AZN) and Donald Trump's decision to co-operate with Joe Biden’s transition team following this month's election defeat.
Brent crude added another 2% to 46.56 US dollars a barrel as rising hopes for a global economic recovery lifted BP (LSE:BP.) out of the doldrums with a jump 17.75p to 271.2p and commodity-focused Glencore (LSE:GLEN) cheered 11.1p to 210.8p, a gain of 6%.
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UK-focused airline and travel stocks were also big winners after Transport Secretary Grant Shapps said people arriving in England would be able to reduce their quarantine period by up to two-thirds on receipt of a negative Covid-19 test after five days of isolation.
While passengers will have to fund the cost of a private test themselves, the prospect of a recovery in travel demand helped British Airways owner International Consolidated Airlines Group (LSE:IAG) surge 9.1p to 175.6p, easyJet (LSE:EZJ) by 7% or 54.6p to 834p and holidays giant TUI (LSE:TUI) up 12% to 2,785.58p.
The so-called reopening trades driving markets higher this week also benefited train station caterer SSP (LSE:SSPG), which rallied 39p to 353.4p, while Cineworld (LSE:CINE) was up another 5.5p to 60.8p after investors were cheered by its debt restructuring announcement yesterday.
The FTSE 100 index was 1% higher at 6,400, but there were still some significant fallers in the session. They included JD Sports Fashion (LSE:JD.), which fell back 5% or 43.8p to 769p after it emerged it is in exclusive talks about a rescue takeover of department store chain Debenhams.
Highly-regarded quality assurance firm Intertek also dropped 6% or 358p to 5,714p after its latest trading update pointed to a 150 basis point FX hit at both the revenue and operating profit levels in 2020 results.
The company, which has been one of the best performing stocks in the FTSE 100 in terms of dividend progression since its IPO in 2002, is otherwise on track for another resilient full-year performance. It believes the Covid-19 pandemic has highlighted the case for its quality assurance work, including the need for safer and more traceable supply chains.
Despite the currency hit, analysts at JP Morgan Cazenove today moved their price target from 6,400p to 6,500p based on margin progression in the second half of the year and a material improvement in net debt guidance to between £570 million and £590 million.
The fall in Pennon shares came despite a positive trading performance, with the South West Water company's interim results delivering a beat on profits and earnings per share.
Analysts at Morgan Stanley are encouraged by the direction of travel, with an interim dividend of 6.77p a share in line with their forecast and with the company's policy of inflation plus 2%.
About 60% of Pennon’s shareholders are UK-based pension funds, charities, employees, customers and other retail investors. In addition, one in 16 household customers have opted to become Pennon investors through the WaterShare+ scheme, which Pennon said had more than tripled its number of shareholders.
Part of today's share price fall is likely to reflect disappointment at the lack of an update on the potential use of proceeds from July's sale of recycling and waste management business Viridor for £4.2 billion. Pennon is reviewing the “most efficient and effective” method of returning value to shareholders, including the potential for earnings-boosting market acquisitions.
Barclays praised the company's sector-leading outperformance in a note today and said it believed the shares were worth 1,060p. The stock fell 34.4p to 969.6p.
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The decline for Pets at Home shares came after the FTSE 250 index retailer reported a 5% fall in half-year profits to £39.6 million in the face of significant Covid-19 disruption. Shares have risen 45% in the year-to-date, with the reason for the rally shown in today's second quarter performance featuring like-for-like sales growth of 12.7% and a profits rise of 43.7%.
Trading momentum has continued into the third quarter, meaning that management now expects profits for the full year to be in line with last year's £93.5 million. This is despite the cost impact of the pandemic not being fully offset by business rates relief.
The company has kept its interim dividend at 2.5p a share. Pets shares were 20.6p cheaper at 398.2p today, having been trading on a forward price/earnings multiple of 29.8x.
HSBC, which today increased its target price to 450p, said:
“Pets is by no means in the value camp, but relative to retail peers it offers structural industry growth, sizeable competitive scale advantages, and a modern omnichannel business model. There remains a lot to like.”
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