LONDON MARKET MIDDAY: Scuppered Sainsbury-Asda Deal Knocks FTSE 100

LONDON (Alliance News) - The FTSE 100 continued to trade lower at midday on Thursday, bogged down ...

Alliance News 25 April, 2019 | 12:00PM
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LONDON (Alliance News) - The FTSE 100 continued to trade lower at midday on Thursday, bogged down by J Sainsbury's hopes of merging with Asda being dashed and housebuilder Taylor Wimpey warning on higher costs.

The FTSE 100 was down 27.02 points, or 0.4%, at 7,444.73 Thursday midday. The FTSE 250 index was down 65.15 points, or 0.3%, at 19,928.52, while the AIM All-Share was flat at 962.98.

The Cboe UK 100 index was down 0.3% at 12,630.72. The Cboe UK 250 was down 0.2% at 17,828.51, and the Cboe UK Small Companies was up 0.4% at 11,620.82.

In European equities, the CAC 40 in Paris and the DAX 30 in Frankfurt were down 0.1% and flat respectively at midday.

"Although most European indices are trading lower this morning, the FTSE was hit especially hard by a sharp drop in Sainsbury's and Taylor Wimpey shares," explained Fiona Cincotta, senior market analyst at City Index.

J Sainsbury slid 4.8% after the UK competition regulator foiled its attempt to merge with Walmart-owned Asda.

There would be a "substantial" lessening of competition were the two to merge, the Competition & Markets Authority said Thursday, confirming its previously stated preliminary opinion. It said UK shoppers would be affected everywhere, not just where Sainsbury's and Asda stores overlap.

Stuart McIntosh, who chaired the CMA's inquiry group, commented: "Following our in-depth investigation, we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers."

In its own statement, FTSE 100-listed Sainsbury's said it has abandoned the deal, in mutual agreement with Asda's owner Walmart.

"Sainsbury's is a great business and I am confident in our strategy. We are focused on offering our customers great quality, value and service and making shopping with us as convenient as possible," said Sainsbury's Chief Executive Mike Coupe.

Hargreaves Lansdown said the CMA's decision will come as a blow to Sainsbury's as it looks to revive a "paltry performance".

"Sainsbury's position in the middle of the pack makes for tough going as the supermarket space is a crowded one, and the group faces fierce competition from above and below," said Hargreaves Lansdown analyst Sophie Lund-Yates. "That's partly why margins have been hovering around the 2.5% mark, and the deal would have acted as a catalyst to get margins moving."

Taylor Wimpey, meanwhile, was down 3.9% as it warned on flat pricing and cost pressures.

The homebuilder said sales have continued to be "encouraging" through the spring season with average private sales per outlet per week in the year to date up 1.0%, ahead of the company's expectations.

However, Taylor Wimpey said its sales pricing has remained flat with levels seen at the end of 2018. Taylor Wimpey also expects build-cost inflation for 2019 to be about 5% after experiencing higher than anticipated inflation in the early part of the year, particularly in materials.

The cautious update from Taylor Wimpey caused other housebuilders to fall in a negative read-across, with Persimmon down 2.2% at midday, Barratt Developments 2.1% lower and Berkeley Group Holdings dipping 1.3%.

Barclays was another faller in the FTSE 100, down 2.1% after reporting "challenging markets" for its Corporate & Investment Bank in the first quarter of 2019.

The lender reported pretax profit for the three months ended March of GBP1.48 billion compared to a GBP236 million loss a year before.

Excluding litigation and conduct costs, however, Barclays' pretax profit decreased 11% to GBP1.54 billion from GBP1.73 billion the year before. The lender attributed this drop in part to a "challenging income environment" for its Corporate & Investment Bank.

Barclays' total income was down 2.1% to GBP4.25 billion with net operating income decreasing 5.3% to GBP4.80 billion from GBP5.07 billion. Barclays net interest income increased, however, rising 3.2% to GBP2.26 billion from GBP2.19 billion a year before.

Also in the red was Royal Bank of Scotland, dipping 1.9% after announcing Ross McEwan is to step down as chief executive of the state-backed bank once a replacement has been found.

Meanwhile in the FTSE 250, it was a good session for Sirius Minerals, up 4.1% after sealing a new supply agreement for future production from its Woodsmith mine in Yorkshire, UK.

The ten-year deal has been signed with Munich-based BayWa, and will see Sirius supply the firm with POLY4 fertilizer in Europe. BayWa, Sirius said, distributes over 30 million tonnes a year of agricultural goods in Europe, including some 2.0 million tonnes of fertiliser a year.

Meggitt gained 2.4% on the firm's expectation of "strong" annual revenue growth following a robust first quarter.

The FTSE 250-listed aerospace engineer said this led to organic revenue growth of 9%, excluding foreign exchange and disposals.

"We continue to expect strong revenue growth in 2019, but are mindful of more challenging year on year comparators in the remaining three quarters, the potential for air traffic growth to moderate and the uneven nature of demand for defence products," the company said.

Meggitt said its Civil Aerospace division achieved a 7% rise in organic revenue, with the Original Equipment unit reporting 9% growth. The company said this growth reflected "strong demand" for a new generation of aircraft.

Elsewhere on the London Main Market, Carpetright shares jumped 43% on news of a recent improvement in sales. Trading in the 12 weeks to April 20 has been encouraging, Carpetright said, with UK like-for-like sales improving "significantly" during the last quarter of its year ending on Saturday, compared to the prior three quarters.

Chief Executive Wilf Walsh commented: "This has been a transitional year for Carpetright, and we remain on track both with our recovery plan and our strategic initiatives. The actions taken are driving improvement, particularly in the invested store estate, and the brand remains strong."

Wall Street is pointed to a subdued start on Thursday ahead of another busy session for company earnings, with the Dow Jones called down 0.1%, the S&P 500 seen flat, and the Nasdaq set to rise 0.1%.

In the US corporate calendar, cable firm Comcast, and pharmaceutical firm Bristol-Myers Squibb report before the market opens, while results are due from coffee shop chain Starbucks, car marker Ford Motor and online retail giant Amazon after Wall Street closes.

In the economic calendar are US durable goods orders at 1330 BST.

The pound was slipping on Thursday, quoted at USD1.2875 at midday versus USD1.2945 at the market close on Wednesday.

"Sterling is weaker against the dollar as the potential resolution to the Brexit deadlock seems to be heading towards the removal of the prime minister," commented City Index's Cincotta.

Pressure is mounting on Theresa May to name a date to quit as UK prime minister, after an influential committee of backbenchers demanded "clarity" over what she will do if her EU withdrawal deal fails.

The chair of the 1922 Committee, Graham Brady, said on Wednesday it would be "a surprising response" if May suggested she might stay on as late as December this year.

The threat of an imminent challenge to May's position as Conservative leader was lifted as the committee's executive decided not to change party rules which protect her from a no-confidence vote until December.

Cincotta added: "The political wrangling and the lack of any clarity about Brexit will continue to erode the pound at a slow and steady pace."

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar Rating
Barratt Developments PLC 634.00 GBX 0.41 -
Meggitt PLC 557.20 GBX 0.87
Persimmon PLC 1,974.00 GBX -0.20 -
Taylor Wimpey PLC 165.00 GBX 0.06 -
Sainsbury (J) PLC 205.90 GBX 2.34
Carpetright PLC 15.30 GBX -0.97 -
Sirius Minerals PLC 16.00 GBX 0.82 -
Barclays PLC 155.62 GBX -0.45
Berkeley Group Holdings (The) PLC 3,756.00 GBX -1.91 -
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