FTSE 100 movers: Lloyds leads, investors betting on retailers
The FTSE 100 was on the front foot on Wednesday afternoon, up 0.6% to above 7,220 as Lloyds and a handful of retailers led the way.
Lloyds was one of the top risers on Wednesday even though full-year profits came in slightly short of expectations due to higher remediation costs, but investors were swayed by a 5% dividend hike and a £1.75bn share buyback that was at the upper range of expectations.
"Before the financial crisis intervened Lloyds had a reputation as a solid income stock, and it appears the current management are committed to regaining this mantle," said Russ Mould, investment director at AJ Bell. " A good job too as capital gains from holding the shares have been thin on the ground."
He cautioned that there are clear reasons for not getting carried away, with net interest margin expected to be flat at best in the year ahead and Lloyds’ domestic focus leaving it "particularly sensitive to the eventual outcome from a Brexit process which is still mired in uncertainty".
However, Lloyds was usurped by Kingfisher, the home improvement retailer. With clothing chain Next also on the leaderboard, this continues the theme of an expected consumer spending boost on the back of recent UK economic data. This week wage growth was confirmed in December as remaining well above inflation. A lot hangs on Brexit, analysts caution, but some investors are already betting on potential bargains in the sector on the chance that a deal can be struck.
Sainsbury's was at the bottom of the index after the Competition & Markets Authority hinted that it was minded to block the number-two supermarket group's merger with number-three Asda, warning it could result in higher prices and reduced ranges in hundreds of local areas. The competition watchdog suggested possible remedies including selling off one of the Sainsbury's or Asda brands, divesting large chunks of stores or prohibition of the merger.
Sainsbury's shares tumbled more than 16% despite the immediate response in a joint statement with Asda that they "fundamentally disagree" with the provisional findings and would challenge them, as well as spluttering that it was "surprised that the CMA would choose to reject the opportunity to put money directly into customers' pockets, particularly at this time of economic uncertainty".
Analyst Clive Black at Shore Capital said this angry reaction was "bordering on laughable" and that Sainsbury's "looks like it has misunderstood the consumer and the CMA".
He said the CMA's indication that it could reject the proposed merger would "potentially create retail history" and, while time will tell if Sainsbury and Asda can argue and legally challenge the CMA’s findings, "the deal looks to have suffered a mortal blow; the CMA struggles to see how remedies can deliver its view of a competitive UK market."
Morrisons, which was seen as a possible beneficiary from any enforced store sell-offs, was in the red, but Tesco, which could lose its crown if the deal goes through, was higher.
Tesco was "sitting pretty" said analysts at Jefferies, even though they see the best possible outcome by the CMA's 30 April deadline would be for a merger to be allowed with very extensive remedies.
"In our view the consequent reduction in scale players from four to three, and concurring curtailment of SBRY/ASDA's gross synergies, would be accretive to TSCO's investor attractions. But the likely scenario depicted by the CMA's initial findings is also encouraging."
Centrica was in the red a day ahead of its results.
There was also a cautious note from credit agency S&P about recent details published by energy regulator Ofcom on its proposed methodology for the new price control framework for gas distribution and gas and electricity transmission.
Overall, S&P expects UK gas and electricity networks to find aspects of Ofgem's new methodology "challenging", particularly the reduction in the allowed cost of capital.
"Lower remuneration, a change in indexation, and a shorter regulatory period are marginally credit-dilutive for U.K. gas and electricity networks," said the S&P analysts. "The resulting reduction in revenues could erode the limited headroom on the networks' credit ratios and put the ratings on some networks under pressure."
Market Movers
FTSE 100 (UKX) 7,227.49 0.67%
FTSE 250 (MCX) 19,136.97 0.36%
techMARK (TASX) 3,543.32 0.47%
FTSE 100 - Risers
Kingfisher (KGF) 243.20p 6.11%
Wood Group (John) (WG.) 543.40p 5.93%
Lloyds Banking Group (LLOY) 61.55p 5.45%
GVC Holdings (GVC) 648.00p 5.37%
easyJet (EZJ) 1,321.50p 4.01%
Antofagasta (ANTO) 922.20p 3.62%
Fresnillo (FRES) 1,017.00p 3.44%
Anglo American (AAL) 2,008.00p 2.73%
Johnson Matthey (JMAT) 3,185.00p 2.61%
Next (NXT) 4,981.00p 2.47%
FTSE 100 - Fallers
Sainsbury (J) (SBRY) 241.16p -16.23%
Morrison (Wm) Supermarkets (MRW) 227.35p -5.27%
Reckitt Benckiser Group (RB.) 6,026.00p -2.02%
London Stock Exchange Group (LSE) 4,524.00p -1.72%
British Land Company (BLND) 573.60p -1.68%
Land Securities Group (LAND) 869.40p -1.36%
SEGRO (SGRO) 638.60p -1.30%
Centrica (CNA) 137.05p -1.26%
BAE Systems (BA.) 506.00p -1.09%
BT Group (BT.A) 229.75p -0.97%