LONDON MARKET OPEN: Tesco Shares Fall Despite Record Christmas Trading

(Alliance News) - Stock prices in London opened slightly higher on Thursday on hopes of higher US ...

Alliance News 14 January, 2021 | 8:56AM
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(Alliance News) - Stock prices in London opened slightly higher on Thursday on hopes of higher US stimulus, while a record performance from Tesco over Christmas did little to impress investors.

President-elect Joe Biden on Thursday will unveil his plan to revive the US economy, as evidence mounts that the country's recovery from the coronavirus pandemic is flagging, despite substantial fiscal stimulus already.

The FTSE 100 index was up 7.51 points, or 0.1%, at 6,753.03. The mid-cap FTSE 250 index was up 129.65 points, or 0.6%, at 20,745.96. The AIM All-Share index was flat at 1,184.73.

The Cboe UK 100 index was up 0.1% at 672.22. The Cboe 250 was up 0.5% at 17,962.11, and the Cboe Small Companies was down 0.1% at 12,257.56.

In Paris, the CAC 40 was up flat, while Frankfurt's DAX 30 was 0.5% higher.

"Investors are waiting for the US stimulus deal unveiled today, which could be in the region of USD2 trillion. Details around infrastructure spending are unlikely today but would be positive if included. The news is helping to support broader macro risk, with rates higher and commodities mostly higher but not explosively so," said Axi's Stephen Innes.

In the FTSE 100, Whitbread was the best performer, up 2.1%, with analysts hopeful of a recovery once the pandemic subsides. The Premier Inn owner said its third-quarter performance reflected the damage inflicted by the ongoing Covid-19 government restrictions in the UK and Germany, where it operates hotels.

For the third quarter to November 26, total like-for-like sales growth was down 56% and year-to-date was down 70%. Premier Inn UK total sales were 55% down in the third quarter reflecting the ongoing UK government restrictions on the operation of hotels and restaurants, which forced closures of non-essential businesses.

As a result, total UK accommodation sales were down 55% with occupancy at 49%. Whitbread said with the increased restrictions, total UK accommodation sales were down 66% for the 5 weeks to December 31, with occupancy at 31%. Following the updated UK government restrictions announced earlier this month, Whitbread said around two-thirds of hotels remain open, while all restaurants are closed.

Whitbread said its balance sheet remains strong with a net cash position at December 31, of around GBP40.0 million compared to GBP196.4 million at the end of the first half.

"Lockdowns drive the short term narrative but we argue that Whitbread will be the quickest company in our hotel coverage to recover given domestic exposure economy/midscale. We also see a material market share opportunity in the UK and Germany," said Jefferies analyst Becky Lane.

At the other end of the large caps, Tesco was down 2.0%. Tesco said a strong UK sales performance was sustained in the third quarter as shoppers splurged on the grocer's premium 'Finest' food products range over the Christmas holiday period.

For the third quarter to November 28, Tesco reported group like-for-like sales growth of 5.7%, while Christmas trading in the six weeks to January 9, like-for-like sales growth was 5.4%. In the UK, like-for-like sales growth was 6.7% for the quarter and 8.1% for the Christmas period. Tesco said UK sales grew across all formats, channels and categories. Online sales growth was particularly marked at over 80%, equating to nearly GBP1 billion extra sales over the 19-week period.

Looking ahead, Tesco said guidance for the 2021 financial year is unchanged, and it remains confident that retail operating profit is likely to be at least at the same level as in 2020, excluding the repayment of business rates relief. In financial 2020, Tesco posted retail operating profit of GBP2.81 billion.

However, Tesco increased the estimate of its incremental costs of dealing with the Covid-19 pandemic in financial 2021, such as increased staff absence, to GBP810 million from GBP725 million.

"It's a strange time for supermarkets such as Tesco. Sales have boomed during coronavirus but so too have costs. The problem for supermarkets is that making stores safe for customers, dealing with disruption in supply chains and losing productivity through staff illness - all from coronavirus - hit the bottom line hard," said eToro analyst Adam Vettese. "Tesco estimates that its costs could rise by more than GBP810m this year purely as a result of the pandemic. Much of that has been offset by exceptionally strong sales, but it disproves the myth that supermarkets have been coasting through this crisis."

B&M European Value Retail, Sage Group and SSE were the worst performers, down 3.1%, 2.8% and 2.5% respectively. The stocks went ex-dividend meaning new buyers no longer qualify for the latest payout.

The pound was quoted at USD1.3665 on Thursday morning, up from USD1.3629 at the London equities close Wednesday.

The euro was priced USD1.2148, lower from USD1.2158. Against the yen, the dollar was trading at JPY104.05, up from JPY103.92.

Brent oil was quoted at USD56.05 a barrel Thursday morning, down from USD56.21 a barrel at the London equities close Wednesday. Gold was quoted at USD1,841.26 an ounce, down from USD1,857.59.

The Japanese Nikkei 225 index closed up 0.9%. In China, the Shanghai Composite ended down 0.9%, while the Hang Seng index in Hong Kong closed up 0.9%.

China's trade surplus with the US widened last year despite a partial trade deal requiring Beijing to boost purchases, official figures showed.

China's customs administration data showed the surplus climbed 7.1% to USD316.9 billion, with outbound shipments boosted by sales of electronics goods and protective gear. Although the world's second-largest economy sufered a record contraction in the first quarter of last year as the coronavirus brought activity to a halt, it soon recovered as lockdowns in the country were eased and medical exports soared.

For the whole of 2020, China's exports rose 3.6%, although imports shrank 1.1%.

In Thursday's economic calendar is Irish inflation at 1100 GMT and minutes from the European Central Bank's last meeting at 1230 GMT. US continuing jobless claims are due at 1330 GMT and US Federal Reserve Chair Jerome Powell speaks at 1730 GMT.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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