FTSE rebounds as GDP growth prompts recovery optimism

UK equities managed to claw back some of the heavy losses made yesterday on the back of the US technology sell-off as GDP figures were better than expected.

The FTSE 100 rebounded on the back of stronger-than-expected economic growth data that drove recovery optimism and upbeat earnings from the likes of Guinness and spirits maker Diageo (DGE).

The main market regained some of yesterday’s heavy losses, gaining 0.73%, or 50 points, at 6,998 as the Office for National Statistics reported the British economy grew 2.1% in March, beating economists’ 1.3% growth prediction.

GDP declined 1.5% in the first three months of 2021 as services and production output fell during lockdown, but the decline was less severe than the 1.7% predicted.

Danni Hewson, analyst at stock broker AJ Bell, said the vaccine rollout had driven ‘recovery with a capital R’.

‘This growth has particular significance because it shows how the economy can function if future lockdowns arise,’ she said.

British exports have enjoyed a recovery despite restrictions and the ‘amount of goods heading into the EU has almost returned to December levels’ but import numbers are taking time to move higher due to the continent’s coronavirus battle.

Positive earnings upgrades also helped the blue chips move higher, with drinks giant Diageo (DGE) jumping to the top of the index with a gain of 3.3%, or 105p, to £32.95.

The group said it expected organic operating profit growth of at least 14% this year and announced it was restarting its £4.5bn share buyback and special dividend programme.

Hargreaves Lansdown analyst William Ryder said there was a ‘reasonable case for keeping buybacks on ice a little longer’ as debt is still high and the shares are trading on 25.7 times earnings, ‘which is well above the long run average [P/E ratio] of 19.6’.

‘Diageo is a strong business with excellent brands, so while the valuation is relatively high, it’s not ridiculous,’ said Ryder. ‘However, together, debt and valuation make a reasonable case for delaying further buybacks a little longer.’

Miners also enjoyed a rebound on recovery hopes, with Glencore (GLEN) adding 3.1% to 338p, Anglo American (AAL) up 1.9% at £34.59, Rio Tinto (RIO) increased 1.8% to £66.59, Antofagasta (ANTO) gained 1.5% to £18.99, and Evraz (EVRZ) up 1.5% at 693p.

The FTSE 250 added 103 points, or 0.4%, to 22,271. It lagged its large-cap peer despite a shares in UDG Healthcare (UDG) shares soaring 21.7%, or 183p, to £10.25 as it agreed a £2.6bn takeover.

The company, which provides clinical, commercial, and packaging services to the healthcare industry, will be taken private after a subsidiary of US private equity company Clayton, Dubilier & Rice made a cash offer.

In investment trusts, Baillie Gifford’s flagship fund Scottish Mortgage (SMT ) clawed back some of yesterday’s declines in the US technology sell-off, adding 2.1% to £11.08.

Life sciences fund Syncona (SYNC ) gained 4.5p, or 2.1%, to 216.5p after portfolio company Achilles Therapeutics said key drugs testing programmes would continue as planned in a first quarter update.

KKV Secured Loan (KKVL ) and Secured Income (SSIF ) rose 2% and 1.2% to 18.6p and 60.8p as Dawn Kendall, chief investment officer of the funds’ manager, took temporary leave of absence but was expected to return in two months.

Schroder Income Growth (SCF ) added 5p, or 1.6%, to 313p after half-year results showed the Sue Noffke managed UK equity income trust beat the FTSE All Share’s 12% gain in the six months to 28 February with a 16.1% growth in net asset value underpinning a 19.6% total return to shareholders.

RM Secured Direct Lending (RMDL ) rallied 1.5% to 92.4p as it renamed itself RM Social & Environmental Infrastructure Income (RMII) and, after consultation with leading shareholders, said there would be no exit opportunity would be provided before June.

Polar Capital Global Financials (PCFT ) put on 2p to 163.8p after confirming a ‘C’-share issue at 100p.

GCP Student Living (DIGS ) jumped 1.8% to 165p after a first quarter update showed a 3.5% rise in the valuation of its student accommodation portfolio. Bookings for the academic year 2020/21 remain at 68% and 86% of total rent has been collected. It expects to collect 55-60% of budgeted total income of £60.1m for the year.

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