Leading shares are ending the week on a downbeat note, with mining shares dragging the market lower.
But supermarkets are bucking the trend, with Sainsbury up 5.6p to 294.4p as Deutsche Bank moved from hold to buy and lifted its target price from 265p to 325p, citing the benefits of the purchase of Argos owner Home Retail. But the bank cut its rating on Morrisons from hold to sell to little effect, with the shares up 2.5p to 193.7p.
On Sainsbury Deutsche said:
We factor in the expected accretion from the Home Retail Group acquisition and increase our price target 23% from 265p to 325p. In our view, investors are reluctant to factor in this earnings accretion due to execution risk. We also show that Sainsbury’s has achieved the greatest reduction in the level of promotions of the Big 4, over the past 18 months. We think this can contribute to a better margin trend. On 13 times consensus 2016 PE, Sainsbury’s share price already reflects downside risk to near term earnings. In combination with a 3.5% dividend yield, we see 15% return potential. With risk/reward skewed to the upside, we upgrade from hold to buy.
Tesco is 4.65p better at 189.65p after Fitch revised its outlook for the supermarket from negative to stable, on the expectation of a recover in the UK market.
Overall the FTSE 100 is 44.03 points at 6337.41, with Rio Tinto down 64.5p at £23.40 and Antofagasta falling 10.6p to 475.5p. Anglo American has dropped 13p to 734.3p as it confirmed 41.5% of investors voted against its remuneration report.
Tony Cross at Trustnet Direct said:
The Dow Jones non ferrous metals index took a pummelling yesterday, finishing around 7% lower and this is certainly weighing on sentiment amongst the miners this morning.
Burberry has dropped 19p to £12.54 as the luxury sector came under pressure after disappointing results at the Gucci brand of France’s Kering.
Housebuilders have regained some ground after recent weakness with Persimmon up 41p at £19.23, Barratt Developments was 10.5p better at 520.5p and Berkeley Group rose 54p to £29.46. Analysts at Liberum said:
We turned cautious on housebuilders in November citing stretched valuation and our fears of margin pressure. The shares have underperformed with Brexit and prime London the main culprits. Margin pressure remains a threat and not all Brexit risks are priced in, but valuation is much more accommodating. We remain more cautious than most but see little downside in the sector now. We upgrade Barratt and Persimmon to hold, leaving only Taylor Wimpey at sell.
Elsewhere travel and insurance business Saga has climbed 8.4p to 209.8p despite its largest shareholder Acromas selling its entire 32% stake in the business through Numis at 195p a share for around £700m.
