FTSE 100 analysis: Rolls Royce shares pop on huge beat – Top UK stocks

FTSE 100 stalls

The FTSE 100 is trading marginally lower this morning, having hit a two-month high yesterday.

The headline event in the economic calendar today is the Federal Reserve’s interest rate decision. A 25bps increase has been firmly priced-in, but markets are still uncertain whether this will be the last hike of 2023. That will be followed by the Bank of England decision tomorrow and the Bank of Japan on Friday.

FTSE 100 analysis: Where next for the UK 100?

The UK 100, which tracks the performance of the FTSE 100, booked its sixth consecutive session of gains yesterday and climbed to a two-month.

The index can keep climbing toward 7,780 if it can maintain momentum, with the RSI suggesting there is further room for the rally to run. It has moved above all three moving averages.

We should see 7,650 provide some support as this held as a ceiling in the first half of June and is roughly aligned with the 50% retracement from the lows we saw earlier this month. The pace of gains have accelerated over the past week so we could see it slip back, although the new rising trendline from the recent-lows remains intact.

Top UK stock news

Rolls Royce is up over 13% and at levels not seen since March 2020 after it upgraded its full year outlook, having seen a significant improvement in performance in the first half as its turnaround plan progresses. Underlying operating profit in the first half will be in the range of £660 million to £680 million, which it said is well ahead of consensus for just £328 million. Free cashflow of £340 million to £360 million was also much better than the £50 million consensus. Rolls Royce said it now expects to deliver annual underlying operating profit of £1.2 billion to £1.4 billion over the full year. It said a recovery in margins was driven by its civil and defence operations.

NatWest is down 2.2% today after CEO Alison Rose stepped down after admitting she was the source of an inaccurate story regarding the bank accounts of Nigel Farage. The board had given her its full backing but said her resignation had now been agreed by ‘mutual consent’. That comes just days before the bank reports results on Friday. Paul Thwaite, the current CEO of its commercial and institutional business, will takeover as CEO on an initial 12-month contract.

Lloyds is down 2.6% this morning despite raising its margin and return on tangible equity targets for the full year after its profit after tax met expectations in the first half after rising to £2.86 billion from £2.45 billion the year before. That was thanks to higher interest rates, which pushed up its net interest margin to 3.18%, just ahead of the 3.16% forecast. Lloyds said it is now aiming for a net interest margin of over 3.1% this year rather than its previous goal of 3.05%, and said it is targeting return on tangible equity of over 14%, up from its previous target of over 13%. Loans and advances were some £4.2 billion lower than last year after it sold off a chunk of its mortgage portfolio, while customer deposits plunged £5.5 billion. It raised its interim dividend by 15% to 0.92p.

GSK is down 0.4%. The company upgraded its outlook for the rest of the year after beating expectations in the latest quarter. The pharmaceutical giant said revenue rose 4% year-on-year in the second quarter to £7.18 billion, coming in comfortably ahead of the £6.8 billion forecast by analysts that had anticipated a mild drop in sales. Adjusted EPS jumped 12% to 38.8p and was also ahead of the 35p estimate. Specialty medicines reported faster topline growth than anticipated while vaccine sales, especially for HIV, remained buoyant. GSK said it is now aiming to grow annual sales by 8% to 10% and adjusted EPS by 14% to 17%, having previously guided for 6% to 8% topline growth and EPS growth of 12% to 15%.

Reckitt Benckiser is down 1.6% in early trade. The company said revenue was up 8.1% in the first half at £7.45 billion, with like-for-likes rising 6%. Adjusted operating profit rose 0.2% to £1.77 billion as higher sales countered tighter margins. It will pay an interim dividend of 76.6p, up 5% from last year. The company said it remains on track to grow annual like-for-like sales by 3% to 5% but said adjusted operating margins will be ‘slightly above 2022 levels’, having previously expected them to stay broadly flat.

British American Tobacco is up 1.9% after it reiterated its outlook as it reported growth in the first half of 2023. The tobacco giant said revenue was up 4.4% from last year to £13.44 billion, driven by its next-generation products that saw revenue surge over 26%. Non-combustibles now accounts for 16.6% of group sales. Operating profit jumped 61% to £5.94 billion thanks to a much better margin, with diluted EPS more than doubling to 176p.

Rio Tinto is down 2.1%. It reported a milder decrease in earnings than expected in the first half. The miner said underlying Ebitda was down 25% from last year at $11.7 billion. That will be welcomed considering analysts anticipated a much steeper fall of around 39%! However, net earnings were down 43% at $5.11 billion and came in below the $6.0 billion forecast. It is paying an interim dividend of 177 cents per share, down 34% from what was paid out last year as these are linked to earnings.

Anglo American is down 0.9%. It said its De Beers unit sold $410 million worth of diamonds in the sixth sales cycle of 2023. That was down from the $456 million made in the fifth cycle and the $638 million booked in the sixth cycle of last year. ‘In line with seasonal trends, rough diamond sales continued at a lower level during the sixth sales cycle of the year. Participants in the diamond industry's midstream sector continue to take a cautious approach to purchases in light of ongoing macroeconomic challenges,’ said De Beers CEO Al Cook.

Just Eat Takeaway is up 3% after Northern Europe and the UK saw gross transaction value return to growth in the first half of 2023, helping adjusted Ebitda return to profit of EUR143 million from a EUR134 million loss the year before. It said it is ‘fast approaching’ its goal to generate free cashflow by the middle of next year, although it burnt through EUR78 million in the period, partly as GrubHub is still a drag. It said it expects GTV to be anywhere from down 4% to up 2% over the full year and is aiming to deliver adjusted Ebitda of around EUR275 million. The firm also said chief financial officer Brent Wissink is stepping down.

Aston Martin is up 4.6% as it revealed revenue rose and losses shrank following higher wholesale volumes in the first half. The carmaker delivered 10% more cars in the first half compared to the year before and that, twinned with higher prices, pushed up revenue by 25% to £677.4 million. Adjusted Ebitda improved 38% to £80.6 million. It remained in the red but saw losses narrow, with its pretax loss shrinking to £142.2 million from £285.4 million last year. It reiterated its outlook.

RHI Magnesita is down 1.6% this morning. The company said revenue was up 9% in the first half at EUR1.7 billion while adjusted Ebitda climbed 8% to EUR200 million. Adjusted EPS at the bottom-line was down 2% at EUR2.53. The topline was pushed higher as higher steel prices countered lower volumes. It warned the outlook for its end markets remains uncertain and that its order book suggests things will remain weak in the second half.

Tyman is up 3.2% today after being upgraded to Buy by Berenberg.

Glencore has been downgraded to Hold by HSBC, which has a price target of 510p on the stock. The miner is down 1.5% at 474.64p this morning.