Market report

Market dragged lower by windfall tax threat | KPMG fined


5pm: Windfall tax threat hits market

Weak PMI data and fears over a potential windfall tax dragged the market lower, with the latter hurting energy companies.

Perth-based SSE tumbled 7.7% after Citigroup cut the electricity utility to ‘neutral’ from ‘buy’. The US bank also cut generator Drax to ‘sell’ from ‘neutral’. Shares in the FTSE 250-listed power generation firm slumped 14%.

Other energy companies felt the cold chill of the market. British Gas owner Centrica lost 7.6%, Frankfurt-listed RWE fell 4.5% and Scottish Power owner Iberdrola fell 0.5% in Madrid.

The FTSE 100 index closed down 29.09 points, or 0.4%, at 7,484.35.

CMC Markets analyst Michael Hewson, said: “The FTSE 100 has once again outperformed due to its more defensive qualities, although utilities, which traditionally do well are being hampered by the prospect that the UK government might be considering submitting to populist demands for a windfall tax.”

Barclays launched its £1 billion share buyback programme, announced in February, which had been delayed in March after the bank admitted it sold more products to investors than allowed.

Glencore closed up 1.8% after the commodities company said it expects to resolve its US, UK and Brazilian investigations this year. It said it will appear in court in the US and UK and expects to issue an announcement afterwards.

Bloomberg reported that Glencore will pay $1.5 billion to settle US and UK investigations into alleged wrongdoing.

11.30am: Shell protest

Climate activists staged a noisy demonstration during the annual general meeting of energy company Shell, leading to angry exchanges with the chairman and shareholders.

Full story here

9.30am: Tax threat drags market lower

The UK market fell in early trading, dragged down by SSE which plummeted 9% on reports that the Government might impose a windfall tax on big profits from electricity generators including wind farm operators.

Chancellor Rishi Sunak is said to be considering a wider windfall tax on electricity generators, as well as on oil and gas producers, that could bring in billions of pounds to help households struggling with soaring food and energy costs.

He has instructed Treasury officials to work on plans for a potential tax on more than £10bn of excess profits made by electricity generators, including windfarm operators, according to sources cited by the Financial Times.

That would go far beyond Labour’s plan for a one-off levy applied only to North Sea oil and gas producers, which would raise an estimated £2bn.

Russ Mould, investment director at AJ Bell, says: “The Government wants to raise money to help households hit by a sharp rise in energy bills.

“While it is right that some support should be given to those most in need during these difficult times, the way in which new funds are raised means the Government runs the risk that energy companies slow down investment in new green projects which could make it harder for the country to hit its net zero emissions targets.”

The FTSE 100 was down 47.25 points (0.63%) at 7,466.19

8.30am: KPMG hit with fine

KPMG has been handed a £3.375 million fine by the financial watchdog following an investigation into its audit of engineering giant Rolls-Royce in 2010.

The big four accountant saw a fine of up £4.5 million reduced after admissions related to the case. Partner Anthony Sykes was fined £112,500, and both received a ‘severe reprimand’.

KPMG had been Rolls-Royce’s auditor since 1990 but was sacked by the firm after agreeing a settlement with the Serious Fraud Office and US Department for Justice amid bribery claims.

7.30am: Public borrowing improves

The UK’s public finances came in better than expected in April, but remain close to record levels.

Borrowing of £17.8bn was marginally lower than the forecast £17.9bn.

Excluding public sector banks, the government borrowed £18.6bn, the fourth highest borrowing in April for 29 years.

This was £5.6bn less than in April 2021, but still £7.9bn more than in April 2019, pre-coronavirus pandemic.

7am: Artisanal Spirits Company

Mark Hunter, chair of the Artisanal Spirits Company, owner of the Scotch Malt Whisky Society, says China’s Covid shutdown was presenting “additional challenges” but it remains on course to meet its forecasts for growth.

He will tell shareholders at today’s AGM that the positive momentum in the business referred to in the full-year results in March has continued, with revenue growth in the period to April remaining above 30% year-on-year.

Full story here

7am: Calnex record order book

Telecoms equipment testing firm Calnex Solutions said it begins the new year with a record order book after a robust 12 months.

The Linlithgow-based company posted revenue growth of 23% to £22m for the 12 months ended 31 March 2022 (FY21: £18.0m).

Adjusted profit before tax grew 18% to £6.0m (FY21: £5.1m), reflecting continued high demand.

Full story here

7am: Kier winning work

Kier, the infrastructure and construction services group, performed well in the period 1 January to 30 April 2022, despite the continuing inflationary pressure. The group said it continues to trade in-line with the board’s expectations.

In a trading update it said it continues to win new, high quality and profitable work.

As at 31 March, the group’s order book was c.£8.5bn, an increase of c.6% from the 31 December 2021 position of £8bn.

The order book continues to be underpinned by significant long-term framework agreements.

7am: Homeserve

Home repairs and emergency services provider Homeserve said annual profits almost trebled ahead of its sale to Brookfield Asset management in a £4.4bn deal.

The company posted a pre-tax profit of £175.1m for the year to 31 March against £47.2m a year earlier. No final dividend was declared in light of the cash offer, it added.

Global markets

The FTSE 100 was expected to fall despite US markets finishing higher, with the Dow Jones Industrial Average rising up almost 2%, the S&P 500 gaining 1.9% and the Nasdaq Composite rising 1.6%.

However, most Asian markets are in the red this morning, led by Hang Seng and Shanghai, down 1.6% and 1.2% respectively after US President Joe Biden added to geopolitical tensions by saying the US would intervene to defend Taiwan in the event of a Chinese invasion.

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