Tesco’s surprise profit warning has sent supermarket shares tumbling and left the market nursing hefty losses once more.
But there are a couple of bright spots, notably outsourcing group G4S. The company has climbed 7.2p or nearly 3% to 281.2p after Credit Suisse analysts moved their recommendation from neutral to outperform and raised their target price from 245p to 320p. In a hefty note on the business services sector the bank said on G4S:
We think there is significant opportunity within the business to reduce cost and improve efficiency. GFS is, we think, a combination of an attractive multiyear self-help story plus a stock for which organic growth should accelerate into 2015. Our earnings per share estimates rise 7%-11% for 2015- 2016. Our 2015 forecasts are 3% above consensus.
But Capita has slipped 10p to £10.47 as the bank kept its neutral rating but cut its price target from £12.15 to £12.
Overall the FTSE 100 has fallen 71.08 points or more than 1% to 6601.07, with the prospect of a Santa rally seeming fairly distant. The index is on course for its lowest finish for a month.
Worries about the global economy, following Monday’s disappointing data from China and Japan and growing concerns about the eurozone - with Greece calling snap presidential elections after failing to exit its bailout programme - continue to unsettle investors. A drop in the Chinese currency on talk the country’s central bank will take more measures to stimulate the economy has also led to further volatility, while the recent drop in the oil price puts commodity companies under pressure .
Mike McCudden at Interactive Investor said:
The continued lag from Asia and the eurozone and mounting pressure on commodities is pushing investors towards the exits once again. Furthermore, recent comments from ECB member Nowotny, highlighting the vulnerability of the eurozone, is ensuring the selloff in the region continues. Aggressive moves on monetary policy are expected in the new year but doubts remain over its impact.
Reports that the Fed is close to retracting the pledge to keep interest rates very low will ensure pressure remains on equities until there is some clarity.
Supermarkets dominate the fallers after the Tesco shock. Tesco itself is down 20.95p or 11% at 166.35 while Morrisons is off 9.1p at 175.8p and Sainsbury has fallen 8p to 227.8p. With Tesco in trouble, analysts believe a price war could hit all supermarkets, even as the discounters Aldi and Lidl gain market share.
Mining shares continue to be weak on the oil price and worries about Chinese growth, with BHP Billiton 34.5p lower at 1402.5p.
Temporary power supply business Aggreko is down 62p to £14.99 after Jefferies moved from buy to underperform and slashed its price target from £18.10 to £13.50. It said:
The power projects story could well benefit from a lower oil price. In the near term, however, we are cautious about oil and gas exposure in the local business, particularly with shale operators in North America. Into 2015 with a new chief executive, transformational strategic shift looks difficult without reducing returns. As we are 5-10% below consensus earnings per share we fear earnings momentum could be negative in the near term.
