European Movers: Leonardo (LDO IM) +4.1%

European Movers: Leonardo (LDO IM) +4.1%, Vallourec (VK FP) +1.6%, Repsol (REP SM) +1.2%, Greggs (GRG LN) -2.7%, Tesco (TSCO LN) -4.7%, AB Foods (ABF LN) -10.7%

• Defence stocks face pressure as President Trump blocks dividends and buybacks, targeting RTX for slow production.
• European retail sector sees mixed results; Greggs reports sales growth, while Tesco and AB Foods face challenges.
• Vallourec initiates a significant share buyback, boosting investor sentiment.

In a significant move impacting the defence sector, President Donald Trump has announced measures targeting defence contractors, specifically RTX (formerly Raytheon Technologies). Trump criticised the company for its slow production output and prioritisation of shareholder returns over operational improvements. An executive order now blocks these firms from paying dividends or buying back shares until production metrics improve. Additionally, executive pay is capped at USD 5 million, with incentives tied to delivery and performance. This development has placed RTX under scrutiny, with the Department of War highlighting its lack of responsiveness and slow output increase. Market participants are closely monitoring RTX's response, as failure to invest in plants and equipment could result in lost business.

In the European retail sector, mixed performances were observed. Greggs reported a 7.4% year-on-year increase in total sales for Q4, with like-for-like sales up 2.9%. Despite challenging market conditions, Greggs continues to outperform, gaining market share and projecting a full-year outcome in line with expectations. Looking ahead, the company anticipates lower cost inflation in 2026, although consumer confidence remains a concern.

Conversely, Tesco's Q3 like-for-like sales in the UK rose by 3.9%, slightly below the expected 4.83%. Despite this, Tesco has adjusted its guidance, now expecting to deliver group adjusted operating profit at the upper end of the previously guided range. Meanwhile, AB Foods reported a modest 1% increase in group revenue, with its Primark division experiencing a challenging start to the financial year. Primark's UK sales grew by around 3%, but the company now expects group adjusted operating profit and EPS to fall below last year's figures.

In the energy sector, Repsol received an upgrade from Jefferies, moving from Hold to Buy, which has positively influenced its stock performance. Vallourec announced a EUR 200 million share buyback, aiming for a total shareholder return of at least EUR 500 million by August 2025. This move has been well-received by investors, contributing to a 1.6% rise in Vallourec's stock.

Trader Insight:

• Defence sector participants are closely monitoring RTX (RTX) for potential operational changes following President Trump's executive order.
• Retail sector traders are assessing the impact of mixed results on Tesco (TSCO LN) and AB Foods (ABF LN), with a focus on consumer confidence trends.
• Energy sector observers are considering the implications of Repsol's (REP SM) upgrade and Vallourec's (VK FP) share buyback on stock performance.
• Some traders may consider positioning in European retail ETFs to capture potential sector rotation based on recent earnings reports.

Disclaimer: This is not trading advice. For informational purposes only.