UK shares: BT hits 6-year high, Diageo rallies despite US weakness

BT shares rallied sharply Thursday after the telecoms giant said it's on track to hit £2bn in free cash this year and £3bn annually by the end of the decade. Shedding of Openreach customers slowed to 175k lines from 192k in the prior quarter. BT said pretax profit rose 12% to £1.07 billion in the half year from £956 million the year prior, while revenue edged up to £8.75bn from £8.70bn. Service revenue was 1% ahead of consensus for the quarter, while revenue and Ebitda were3% ahead thanks to strong performance in Consumer and Openreach. The pension deficit fell to £2.7bn from £3.7bn, whilst it struck a new funding agreement to generate more dividends. Shares rose about 6% in early trade, extending a month-long rally to reach their highest since 2019.

Next beat forecasts but didn't raise its guidance. In the thirteen weeks to 31 October, full price sales were up +8.1% versus last year, +£33m ahead of guidance of +5.8% for the second half. The UK retail bellwether said all of the outperformance came from the international business with the hot summer hitting sales in September. Full price sales up +2.0% versus last year, in line with guidance. International sales were up +32.2%, against forecast of +20.5%.

Diageo reiterated its full-year guidance despite ongoing softness in North America. The Guiness owner said Q1 reported net sales increased 1.2% to $4.9bn, with positive organic growth partly offset by unfavourable foreign exchange and the impact of disposals. Organic net sales grew 0.6% in Q1 on an underlying basis excluding the impact of the East African Breweries sale. All regions saw positive organic growth except its largest market, North America, where sales fell 3.6%.

Shares rose as the company maintained its fiscal 27 full-year outlook for organic net sales to be broadly flat. North America organic net sales expected to decline mid-single-digit assuming the market is down c.3%. Organic operating profit growth is seen up low-to mid-single-digit, which includes c.40% of the c.$850 million cost savings from the operating framework changes and c.25% of the c.$150 million cost savings from the supply chain initiatives. These changes mean Diageo is taking a big upfront hit with free cash seen at around $2 billion, down from $3.2bn last year after c.$850 million exceptional costs related to those operating framework changes and the supply chain savings programme.

Autotrader shares fell despite delivering 5% earnings per share growth in the six months to the end of September. For the full year, management maintained guidance for operating profit to be £395mn - £415mn, with accelerating revenue growth in the second half. The numbers look solid enough and supply challenges are lessening.

Howden Joinery delivered a positive update despite the persistent headwinds in the UK housing market. In the four-month period to 31 October revenue grew +6.8%  and  now stands at +5.1% YTD. More mature UK market sales +1.8% below the International +10.2% growth rate.

Vistry shares were down 5% as it warned of "difficult" trading conditions that haven't improved since its September update. It also pointed to buyers putting off purchases due to the Your First Home, which will not commence until the spring, with management saying it expects "some first-time buyer uncertainty as customers await further details and implementation of the scheme".

Finally, sterling was trading at its highest level since the Brexit vote against a basket of currencies, whilst the FTSE 100 ticked up at the open close to the 11k mark.