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ADVFN Morning London Market Report: Monday 17 December 2018

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London open: Retailers pace the decline after shock profit warning from ASOS

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London stocks fell in early trade on Monday, with retailers under pressure following a shock profit warning from online giant ASOS.

At 0835 GMT, the FTSE 100 was down 0.3% to 6,826.20, while the pound was up 0.1% against the dollar and the euro at 1.2597 and 1.1134, respectively.

London Capital Group analyst Jasper Lawler said: “Suggestions of a second referendum are growing in volume as an increasing number of senior minister’s view this as the only way out of the current impasse, whilst avoiding a hard no deal Brexit. Theresa May is vocally against the idea. We would expect a second referendum to boost the pound, the fact that the pound remains on the back-foot shows this is not being priced in as a realistic possibility right now.”

On the corporate front, retailers were in focus as ASOS shares tumbled 37% as it joined in the high street gloom, downgrading its guidance for the year as weaker trading in November and heavy discounting took their toll.

ASOS cut its sales growth guidance for the year to August 2019 to around 15% from 20-25%, while it EBIT margin expectation were reduced to 2% from 4% and the company said it would cut capital expenditure by £200m. The group said retail gross margin would drop by 1.5 percentage points during the year compared to previous guidance that it would be flat at 49.9%.

Chief executive officer Nick Beighton said: “We achieved 14% sales growth in a difficult market, but in the light of a significant downturn in November, we think it’s prudent to recalibrate our expectations for the full year. We are taking all appropriate actions and our ambitions for ASOS have not changed.”

Shares in Boohoo also took a hit, sliding 9% even as it scrambled to set itself apart from ASOS and looked to reassure investors with a very brief update in which it confirmed that trading remains strong, with record Black Friday sales.

Retailers were weaker across the board, with Next and Marks & Spencer the biggest losers on the FTSE 100, while Primark owner Associated British Foods, Kingfisher, JD Sports, Dixons, Sports Direct and Ted Baker all fell.

Neil Wilson, chief market analyst at Markets.com, said: “If ASOS is finding it tough out there, then just about every retail stock has problem. We knew the high street was struggling due to structural shifts, but ASOS slashing guidance suggests things are even worse in the run up to Christmas than previously thought for the sector and the strife extends well beyond the high street.

“Next’s online business has more than offset weaker in store sales, so the warning from ASOS is a worry. In short, online businesses have seemed immune but the warning from ASOS today suggests they too are at risk from the cyclical slowdown. We must stress that the Asos warning is indicative of a cyclical slowdown rather than being suggestive of the structural problems facing the high street.”

Housebuilders were also on the back foot, with Persimmon, Taylor Wimpey, Barratt Developments and Berkeley all lower after Rightmove’s latest survey showed house prices fell 1.5% in December compared with a 1.7% drop the month before. This marked the biggest fall over two consecutive months since 2012, as sellers try to attract buyers despite a combination of the Christmas slowdown, stretched affordability and political uncertainty.

On the year, house prices were up 0.7% versus a 0.2% decline in November.

Miles Shipside, Rightmove director and housing market analyst, said: “It’s usual for new-to-the – market sellers to price lower in the run-up to Christmas to tempt distracted buyers, so we should not read too much into the mere fact of two consecutive monthly falls .

“However, these falls have been larger than usual, making this the largest fall over two months for six years, showing that there are more than just seasonal forces at play. With stretched affordability limiting some people’s ability to buy for the first time or trade up, a modest lowering of property prices combined with an increase in wage growth could help more of them to move and thus increase transaction numbers.”

Elsewhere, energy supplier SSE lost ground as it pulled out of its planned merger with Innogy’s Npower retail unit, saying the two companies could not agree on commercial terms.

Energy services group Hunting was in the red as it said results to the end of November had remained in line with expectations, but sounded a note of caution over its 2019 outlook with the possibility of deferred orders.

Just Eat ticked higher even as it came under attack from activist investor Cat Rock Capital Management, which owns 2% of the FTSE 100 takeaway food marketplace. Connecticut-based Cat Rock has demanded management “address key issues” and produce a new three-year plan within 30 days, or failing that to pursue “strategic alternatives” of selling off non-core assets including Brazil-based iFood and other non-European businesses.

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