Investors went shopping for Home Retail shares this morning following reports that supermarket chain Asda is planning a bid for the company behind Argos and Homebase.
Shares in Home Retail jumped 5% in early trading to 294.5p, making it the biggest gainer on the main London market.
Yesterday the Mail on Sunday reported that Asda, which is part of US corporation Walmart, is planning a major acquisition in an effort to close the gap with Tesco. Home Retail is apparently one of the companies Asda has looked at.
Shore Capital analyst, Kate Calvert, said this morning that a deal could make sense for Asda, if it could acquire Home Retail for no more than 370p, because:
Home Retail is the market leader in most of its product categories and its market-leading, multi-channel business model would make it an attractive business, we believe. Its customer base also has a similar demographic profile to Asda.
Other retailers were also in demand this morning, with J Sainsbury gaining 2.3% to 346p. This followed a buy note from Bank of America Merrill Lynch, which argued that Sainsbury's push into non-food items, and its store expansion plan, should bear fruit this year.
Kingfisher, owner of B&Q, is up 0.8% at 232p. Traders said Kingfisher should benefit if last weekend's sunny weather turn out to be more than just a blip.
In the wider market, the FTSE 100 broke through the 5,800 mark when trading began, as investors welcomed the news of a €30bn (£26bn) bailout fund for Greece.
But after rising by 33 points to 5,803.71, the FTSE 100 lost all its gains in the first 90 minutes of trading.
The mining and energy sectors makes up most of the fallers, with Xstrata, Petrofac and Antofagasta among the losers. This followed Citigroup's downgrade of Antofagasta from "buy" to "hold".
Arm has also come under pressure, losing just over 2% to 239p after Citigroup also cut its rating for the microchip designer to "sell" from "hold", saying:
While the resilience of Arm's business model through the downturn and leverage potential through the upturn argue for a premium, valuation has now run ahead of fundamentals, in our view.
Arm shares had rallied last week after Apple launched its iPad, which contains several of the firm's microchips. Before this morning, they had outperformed the rest of the microchip sector by 40% over the past 12 months.
