Proactive Investors -
- FTSE 100 in upbeat mood, up 78 points at 7,361
- Banks advance after passing Bank of England stress test
- British Airways (LON:ICAG) owner, IAG, slips after Deutsche downgrade
Virgin Money targets buybacks after passing stress test
Virgin Money UK PLC (LON:VMUK) reaffirmed buyback and dividend plans after sailing through the Bank of England's stress test.
Shares jumped 6.6% as the lender said it would resume its buyback programme during the 2023 financial year and target a 30% full-year dividend payout level.
It continues to expect to operate above a 14% CET1 ratio during the 2023 financial year although given the level of macroeconomic uncertainty this is likely to fall to 13-13.5% in 2024.
The firm said the results were "significantly in excess of the published hurdle rates and it is not required to take any additional capital actions or to submit a revised capital plan."
Winkworth warns on profits
Further evidence of a slowdown in the housing market as estate agent Winkworth has warned of a hit to profits this year, blaming surging interest rates, lower mortgage approval rates and a slowing housing market, adding to concerns over the health of the sector overall.
Winkworth said pre-tax profits for the first half of 2023 would be “below last year’s level”.
Lettings were up about 11% and sales were down 20% compared with the same period last year, as uncertainty has led to “a high number of agreed sales being delayed to the second half of the year”.
“The outlook for sales in the second half of the year remains uncertain [and] full year pre-tax profits are likely to fall below market expectations," it warned.
Shares fell 3.3% to 140.25p after earlier falling as low as 121.25p.
Bunzl hit by RBC downgrade
One of the few fallers in the FTSE 100 is Bunzl PLC (LON:BNZL), down 2.2%, while the FTSE basks in relative glory, up 71 points at 7,353.
RBC Capital Markets has downgraded the stock to underperform from sector perform and cut its share price target to 2,550p from 2,850p.
“We have assembled a composite global raw material input cost basket we believe to be relevant for Bunzl (plastic polymers, pulp, industrial metals, rubber, chemicals) which is now the most negative it has been in the last decade,” the broker said.
It believes this is likely to feed through into product price deflation in financial year 2024 and 2025 once it works its way downstream.
“We think this alone is likely to send Bunzl’s underlying revenue growth into negative territory in FY24E and drive a de-rating of the shares.”
Estimates for financial year 2024 and 2025 have been lowered by around 5% and around 8%, respectively, reflecting cuts to organic growth in both years due to deflationary product pricing and an assumption of margin normalisation to 7.1% by 2025.
RBC sees scope for both consensus earnings pressure and valuation multiple compression.
Thousands of mortgage holders face £1,000 monthly hit
Bank of England governor Andrew Bailey is speaking after the publication of the financial stability report, the Bank’s biannual health check on the UK economy.
The report made grim reading for homeowners with a mortgage.
Our Financial Stability Report looks at the risks in our financial system and what we are doing to ensure households and businesses can rely on it. https://t.co/Pobt3xndiO #FinancialStabilityReport pic.twitter.com/atOJiM7Sfz— Bank of England (@bankofengland) July 12, 2023
The BoE estimated that by the end of 2026, around 200,000 households will see their monthly mortgage bills rise by £1,000 or more while around 1mln households with a fixed-rate mortgage will see their monthly mortgage repayments go up by about £500.
NEW@BankofEngland says its models show that nearly a million mortgage holders across the UK will see monthly repayment increases of £500 or more in the coming months - or £6,000 a year. pic.twitter.com/sgpJUCzJ82— Ed Conway (@EdConwaySky) July 12, 2023
Bailey said the impact of rising mortgage payments “is going to have an impact, clearly. That is part of the transmission of monetary policy, no question about that.”
For the average household, monthly interest payments will go up by about £220 if they remortgage during the second half of this year and their rate goes up by about 3.25 percentage points.
Around 4.5mln people with a fixed-rate mortgage have seen their monthly repayments go up since interest rates started to rise in late 2021, the Bank found.
The Bank of England also warned about signs of rising stress among the most indebted consumers and smaller businesses due to rising interest rates.
It said the UK economy has so far been resilient to higher rates, though it will take time for the full impact of higher interest rates to come through.
At the press conference Bailey said: “It is the case that elements of the global financial system do remain vulnerable to increased interest rates and uncertainty surrounding the economic outlook, and of course tensions geopolitically speaking.”