Retailers in focus but show mixed fortunes, while FTSE 100 struggles for direction
Morrisons may be taking much of the attention after its share price fall in the wake of a profit slump, but it is not the only retailer in the spotlight.
In contrast to the supermarket group Home Retail, owner of Argos and Homebase, has pleased investors with its trading update. It said pretax profit would be slightly ahead of current forecasts of £107m to £111m, helping push its shares up 10.5p to 215.6p. This is better than a prediction of profits at the top end of a range between £90m and £109m made only in January.
Like for like sales at Argos rose 5.2%, with strong demand for televisions and consoles. The company is revamping Argos from a catalogue based business to increased digital sales, and boosting its in-store collection service.
Meanwhile Homebase sales climbed 9.3% - a hefty increase which has helped lift shares in Kingfisher, owner of the rival B&Q chain, by 9.5p to 412.4p. Indeed Kingfisher and Home Retail are the leading risers in the FTSE 100 and FTSE 250 respectively.
Freddie George at Cantor Fitzgerald said:
The trading update for the eight weeks to March 1 was better than expected both for Argos and Homebase. Following this update, we are increasing our 2014 pre-tax profit forecast from £107m to £112m taking earnings per share up from 9.4p to 9.8p and making similar revisions to our subsequent 2015 forecasts. We were impressed with the first sight of the new Argos format, which is currently being rolled out. We are, however, retaining our hold recommendation on the stock but increasing our target price to 215p from 205p in view of the earnings upgrade. We believe 1) initiatives are factored into the valuation, 2) private equity is now less likely to take an interest attracted by the strong balance sheet and 3) AO, a recent IPO, will likely start to make 'inroads' into the Argos electrical categories.But Morrisons is proving a drag on the markets, currently 15.4p or nearly 7% lower at 217.6p after a 13% drop in annual profits to £785m. The news has also pushed J Sainsbury down 19.7p to 313.5p and Tesco 8.5p lower to 305.9p, with fears of a price war growing. Clive Black at Shore Capital said:
Morrison's weak trade, collapse of trade in recent months, represents a change in industry circumstances. The gross margin environment is now much less robust and the downgrade cycle may therefore be greater and more prolonged; making for a sector that remains unloved because stable and visible profits are needed for the sector to re-rate. As such the sector discounts to the FTSE-All Share and General Retailers in likely to persist.Even so the FTSE 100 has managed to edge up 2.23 points to 6623.13, despite yet more poor Chinese data - factory output and retail sales - pointing to a slowdown in the country's economy. The continuing tensions in Ukraine are also making investors nervous, while later come US retail sales and weekly jobless numbers which will give a snapshot of the country's economy.
Elsewhere gaming group Bwin.Party has put on 3.8p to 125.9p after it said the summer World Cup should help it return to growth after problems in Greece and a move away from riskier markets hit its figures in 2013. Earnings fell to €108m from €165m, also hit by start up costs in New Jersey as it moves into the US to take advantage of deregulation there. Nick Batram at Peel Hunt issued a buy note, saying:
Full year numbers were as bad as expected but 2013 should represent the nadir in the Group's fortunes. However, if management fail to deliver the anticipated recovery in 2014, it is possible that others will try.One surprise was the decline in net cash to €63.8m (€96.7m) – we were expecting broadly flat. However, on the positive front the full year dividend was raised to 3.6p (3.44p). The company has also said that it intends to dispose of non-core assets and return any excess cash to shareholders.Activist investor SpringOwl recently agreed to buy a 6.1% stake in Bwin.
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