Better than expected US jobs figures helped the FTSE 100 to end the week on a positive note
Tesco fell to a two-month low on Friday in a rising market, as investors checked out of the supermarket group's shares in the wake of its first profit fall for 20 years.
The company reported half-year figures on Wednesday showing trading profits dropped 10.5% to £1.6bn, prompting concerns about its poor UK performance and growing problems in its international business. It closed down 2.8p at 315.35p on Friday, its worst level since the start of August as analysts queued up to downgrade the business. Kate Calvert and Freddie George at Seymour Pierce said: "The market was prepared for a decline in profits from Tesco, but we believe its first-half results were disappointing even in that context. With no visibility on where UK profitability will bottom and too many of its overseas businesses face trading issues shorter term, we reiterate our reduce recommendation and cut our target price to 290p from 310p."
Caroline Gulliver at Espirito Santo said: "We believe Tesco is in transition and may well emerge a well-run, mature retailer with operating margins of over 5% and a cashflow yield above 10%. But we are not there yet and with several obstacles on the path we cut our fair value by 10% to 300p and keep our neutral rating."
Overall the market ended the week on a positive note, boosted by better than expected US jobs figures, with the FTSE 100 finishing 43.24 points higher at 5871.02. Despite continuing concerns about the eurozone crisis – with the problems in Spain, Greece and Portugal far from resolved – the leading index added nearly 130 points over the course of the week.
Commodity companies were among the main gainers on Friday after the US data suggested a brighter picture for the global economy. Eurasian Natural Resources Corporation led the way, up 18.6p to 333.3p after Credit Suisse said its shares could gain ground in the near term after recent weakness.
Fellow Kazakh miner Kazakhmys climbed 31.5p to 738p, while Vedanta Resources rose 36p to £11.01. Evraz, the Russian steelmaker controlled by Chelsea football club owner, Roman Abramovich, recovered from a fall on Thursday in the wake of news it was taking a majority stake in coalminer Raspadskaya. Its shares ended 9p to 254.1p. But engineering and design firm WS Atkins fell nearly 5%, down 34p to 695p after reports that its role in the west coast rail franchise fiasco was being investigated. The franchise was taken away from the winner, FirstGroup, after irregularities in the bidding process. Atkins – along with law firm Eversheds – had reportedly been hired in January to give technical advice on the franchise process. Meanwhile FirstGroup fell 4.5p to 196.1p having lost 20% on the day the franchise was withdrawn.
Elsewhere energy services business Wood Group added 22.5p to 833.5p after an upbeat trading statement, with the company saying it was confident of meeting full year expectations.
AstraZeneca added 7.5p to 2918.5p, as traders suggested Monday's decision by the new chief executive, Pascal Soriot, to halt its share buyback programme could mean it was on the takeover trail. US group Forest Laboratories was one name mentioned as a possible target. Among the mid-caps, the biggest loser was Kcom. The telecoms group fell 5.6p to 78.75p after reporting lower than expected growth in its business and public sector markets.
Mitchells & Butlers rose 5.6p to 306.6p after Peel Hunt raised its rating from hold to buy. On Thursday horseracing tycoons JP McManus and John Magnier had bought 7m shares in the pubs group through their Elpida vehicle, raising their stake to 22.47%. Joe Lewis, the billionaire currency trader who saw two bids for the business rejected last year, owns 26.3%.
Finally Pursuit Dynamics lost a quarter of its value, down 2.05p to 6.075p after the company said it was seeking new funding as it awaited firm orders for its process technology equipment.
It hopes to provide an update by the end of the month.
In March this year the company raised £9.4m through a rights issue, eight months after an £8m placing.
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