Despite a sharp fall in the Chinese stockmarket after regulators acted to clamp down on speculative trading which had driven some of its recent gains, European markets are on the front foot once more.
Troubled Tesco is among the leading risers, up 4.3p to 223.35p after analysts at Morgan Stanley raised their rating from equalweight to overweight and their target price from 155p to 260p. Investors are increasingly wondering whether the worst could be over for the superrmarket after its recent warnings and executive changes, with like for like sales over Christmas down just 0.5%, a steadier performance than some rivals.
New chief executive Dave Lewis has unveiled price cuts and initiatives to win back customers previously unhappy with its service levels. Morgan Stanley, which has added the supermarket group to its best ideas list, said:
We think Tesco has scope to materially improve its UK operations and return to 3.5% earnings before interest and tax margin by 2019. Combined with moves to optimise the portfolio, this should drive the shares to outperform in the next 12 months.
Overall the FTSE 100 is currently up 14.43 points at 6564.70, with German and French markets also higher ahead of the much anticipated European Central Bank meeting this week, which is widely expected to sanction some form of quantitative easing. Swiss shares rebounded after last week’s shock move by the central bank to remove its currency cap against the euro.
But mining shares have been hit again, not helped by the Chinese situation and despite copper edging higher after recent declines. Rio Tinto has lost 60.5p to £28.28, Glencore is down 5p at 247.55p and Anglo America has fallen 18p to 1081.5p.
Elsewhere temporary power supply business Aggreko has added 27p to £15.67 as RBC moved from sector perform to outperform while Imperial Tobacco was 42p better at £29.34 after Canaccord Genuity raised its target price from £21.30 to £22.
Chocolate specialist Thorntons edged up 2p to 81p after it reported its retail business saw a 5% rise in like for like sales for the second quarter to 10 January, after good demand for inlaid boxes, seasonal products and advent calendars.
But as it warned in December, its commecial business disappointed, with sales down 10.3% after problems with some of its supermarket customers. Nicola Mallard at Investec said:
A setback in revenues in the second quarter is disappointing, but should not be interpreted as a failure of the group’s strategy. Whilst [commerical] was weaker than hoped, this was only in two particular customers (not across the board) and Retail numbers were very good and an indication of consumers’ continuing regard for the brand. We downgrade absolute numbers (2015 estimated pretax profit down 30%), but leave future growth rates intact. There are no serious concerns around the balance sheet given debt facilities were recently refinanced.
