BUSINESS LIVE: BAE hikes profit forecast

Homeowners are bracing for potential fresh mortgage agony with the Bank of England expected to again increase interest rates tomorrow.

Bank ratesetters are widely expected to increase the base rate from 5 per cent to 5.25 per cent as they attempt to bring down inflation.

Housebuilder Taylor Wimpey has warned higher mortgage rates are weighing on potential customers’ ability to afford to buy new homes.

The group has forecast a halving of annual operating profit as elevated mortgage costs make home purchases less affordable amid wider strains in the housing market.

The FTSE 100-listed housebuilder also unveiled a drop in sales and profits for the past six months.

Ambitious targets on electric vehicles could see car giants pull investment from the UK, ministers have been warned.

Business Secretary Kemi Badenoch is said to have told Cabinet colleagues of major concerns about plans to fine car makers £15,000 a vehicle if they fail to meet production quotas on electric vehicles.

HSBC’s boss has drawn a line under the bank’s battle with its largest shareholder over the future of the business.

The banking giant, which delivered a surge in half-year profits, spent the last year in a tussle with a Chinese insurance giant.

Ping An owns an 8.4 per cent stake in the FTSE 100 group and in May failed to force the company to split off its Asian business at the AGM.

But three months after the vote, HSBC chief executive Noel Quinn said the matter was ‘now behind us’.

Andy Murphy, director at Edison Group:

‘This update from Taylor Wimpey constitutes a clear case of “it could have been worse”, as a weakening property market and high operational costs having combined to put huge pressure on the construction sector during H1 2023.

‘With the impact of the building hiatus, induced by Covid-19, still being felt by the industry, current market conditions are naturally taking their toll.

‘That being said, tight cost management, strong brand awareness, and savvy operational maneuvers have helped to mitigate the effect of these external factors on Taylor Wimpey’s profits.

‘Moreover, while not currently translating to strong market demand, the fact remains that Britain needs new homes and will continue to need new homes when mortgage rates stabilise.

‘Current conditions are unfavourable, yes, but the question now is what position Taylor Wimpey will be in when the situation turns.’

Adam Vettese, analyst at eToro:

‘Haleon has posted a squeaky-clean set of numbers this morning, one year on from being spun out of GSK.

‘The firm, which is the home of household pharmaceutical brands such as Sensodyne toothpaste and Centrum multivitamins, has seen a positive uptick in revenues while increasing operating profits by 8.9%. It has now increased profit guidance four times in a row.

‘This has been a familiar story in the past year for major name-brand consumer staples firms. The one thing that unites these companies is pricing power. Inflation has been passed on with no real dent to demand for firms like Haleon as the strong revenue growth suggests.

‘In the past consumer staple brands have tended to be good value-oriented defensive moves for investors in times of economic stress. Haleon fits this mould well but since it is a spin-off, we don’t have a good past measure from the firm to guide what will happen to its demand during a recession.’

London-listed stocks have tracked global markets lower after risk sentiment took a hit after ratings agency Fitch cut the United States’ credit rating.

Fitch on Tuesday downgraded the U.S. to AA+ from AAA, citing fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills.

But BAE Systems has added 4.7 per cent after Britain’s biggest defence company upgraded its guidance for 2023, forecasting annual earnings per share would grow 10-12 per cent.

Smurfit Kappa is down 3 per cent, after Europe’s largest paper packaging producer reported a fall in first-half core profit to $1.21billion.

BAE Systems has upgraded its 2023 guidance thanks to an upturn in global government spending on military equipment in an ‘increasingly certain world’.

The war in Ukraine has supercharged demand for weapons and left the group, which is Britain’s biggest defence company, with a record order book.

BAE told investors on Wednesday: ‘A significant amount of BAE Systems equipment has been provided by our government customers to Ukraine and, as the war in Ukraine continues, we remain closely engaged with our customers around the world to provide effective ongoing support.’

Greggs’ iconic signs and sausage rolls are a staple on every high street. But it is a far cry from the company’s humble origins in Newcastle more than 80 years ago.

The Northern baker has achieved a cult-like status – Greggs bucket hats were everywhere at music festivals this summer thanks to a collaboration with high street fashion store, Primark.

Man Group’s incoming boss is facing a difficult start after profits collapsed in the first half of this year following a series of bad bets on the market.

Robyn Grew, the hedge fund manager’s president, will become its first-ever female chief executive when she takes over from Luke Ellis at the start of September.

But she faces a baptism by fire after the FTSE 250 group reported a pre-tax profit of £107million for the six months to the end of June, down 65 per cent year-on-year, as the fees it raked in from fund performance tumbled by 92 per cent to £25million.

Oli Creasey, equity research analyst at Quilter Cheviot:

‘Taylor Wimpey’s half year results show a resilience that is likely to surprise the market on the upside this morning.

‘The company has exceeded its own guidance for weekly sales rate…Management have increased and narrowed their FY guidance for completions to between 10,000-10,500 homes in the full year.

‘The average sale price of a Taylor Wimpey home grew +7% year-on-year and +2% in the past six months, based partly on a change in types of houses sold, but is also a demonstration of pricing discipline by the company, particularly with volumes as strong as they were.

‘The operating margin fell -6% to 14.4%, but we would suggest this is better than expected given the operating environment, particularly cost pressures, which are now moderating to around 6% annualised cost inflation.

‘It is notable that the company is remaining in a broadly steady state – the net cash position is largely unchanged, as is the size of the landbank, despite the operational pressure being felt.

‘The company has announced a +4% increase to the November dividend, in line with the existing policy to pay out 7.5% of net assets each year, equating to an annual dividend yield of over 8%.

‘The UK housing market remains under pressure. However, Taylor Wimpey is demonstrating that it can still function effectively under this pressure.’

Aarin Chiekrie, equity analyst at Hargreaves Lansdown:

‘A strong set of first-half results have shown that BAE occupies a key space in the defence market.

‘And with some of its biggest buyers, the UK, US and Europe, all expected to continue raising defence budgets over the coming years, the sky really is the limit for this jet-maker.

‘With orders almost double the group’s sales in the first half, the group’s order book’s now sitting at an incredible £66.2bn. Given the increased defence spending environment, that figure’s expected to continue ballooning.

‘Free cash flow’s also increased by around £1bn in the past year, meaning there’s plenty of room to return cash to shareholders via increased dividends and a fresh new buyback programme.

‘All of this has led BAE to bump up its full-year guidance for all key metrics, putting serious weight behind the expectation that stellar progress will continue.’

A senior insider at the Bank of England has been named as its new deputy governor.

Sarah Breeden led the Bank’s response to the Northern Rock crisis in 2007 and will take over from Sir Jon Cunliffe, who has been in the role since 2013.

She will sit on the rate-setting monetary policy committee and financial policy committee.

Haleon has raised forecasts for annual organic revenue growth, with the healthcare company confident that demand for its oral and respiratory health products will stick despite a cost-of-living squeeze.

Haleon, the world’s largest standalone consumer healthcare firm, told investors that full-year organic revenue growth is now expected to come in at 7 to 8 per cent, compared with an earlier forecast of the top-end of a 4 to 6 per cent range.

Analysts on average expect growth of 6.2 per cent.

Taylor Wimpey has flagged affordability concerns due to elevated mortgage rates, but the housebuilder has still forecast annual UK home-build targets excluding joint ventures at the upper end of its previous estimate.

The company, Britain’s third largest housebuilder by market value, posted pre-tax profits of £237.7million for the six months to 2 July, down about 29 per cent from a year earlier.

Jennie Daly, chief executive, said:

‘The first half of the year has been characterised by variable market conditions including substantially higher mortgage rates. While this has inevitably impacted our results, I am pleased that we have delivered a resilient performance with first half completions slightly ahead of our expectations. This performance is testament to the hard work of our teams on the ground and our strong focus on operational excellence and tight cost management.

‘As we move into the second half of the year, our focus remains on optimising all areas of our operations as we continue to support our customers during this uncertain period. With a healthy orderbook and strong underlying interest for our well-located, high-quality homes, we expect full year UK completions excluding joint ventures to be in the range of 10,000 to 10,500, the upper end of our previous guidance.

‘Taylor Wimpey is a strong, sustainable and agile business underpinned by a robust balance sheet and an excellent landbank. We remain well positioned to manage the business through near term challenges while maximising value in the medium to long term.’

Europe’s manufacturing sector fell deeper into decline with the Continent recording its fastest contraction since Covid-19.

Data showed activity in the sector last month dropped to its lowest level since May 2020.

The purchasing managers index (PMI) recorded a reading of 42.7 for July, down from 43.4 the previous month. A reading below 50 indicates a contraction.

BAE Systems has significantly boosted profit growth expectations for the year as Britain’s biggest defence company continues to benefit from higher spending on military equipment by governments around the world in response to a fragile geopolitical environment.

Fresh forecasts of earnings per share growth of 10 to 12 per cent compare to a range of 5 to 7 per cent increase predicted in February, while BAE also lifted sales guidance to 5 to 7 per cent growth from 3 to 5 per cent.

For the first six months of the year, underlying earnings per share rose 17 per cent to 29.6p

Charles Woodburn, chief executive, said:

‘We’ve delivered a strong financial performance in the first half of the year, thanks to the outstanding efforts of our employees.

‘Our global footprint, deep customer relationships and leading technologies enable us to effectively support the national security requirements and multi-domain ambitions of our government customers in an increasingly uncertain world.

‘With a record order backlog and good operational performance, we’re well positioned to continue delivering sustained growth in the coming years, giving us confidence to continue investing in new technologies, facilities, highly-skilled jobs and in our local communities.’