Tesco shrugs off City growls

Published on Monday 5 October 2009 20:58

LONDON FTSE 100 CLOSE 5,024.3 +35.6

TESCO shares overcame bearish comments from analysts ahead of today's interim results, which are expected to show that the grocery giant's growth is still slower than its rivals.

Britain's largest retailer is expected to report a 3 per cent rise in first-half profits, with like-for-like sales growth in the UK of 3.5 per cent, a lower rate than Sainsbury's, which is due to report tomorrow.

Evolution Securities initiated coverage of Tesco with a "reduce" rating, arguing that its "natural market share" might be lower than its current 30.9 per cent.

Analyst Dave McCarthy wrote that Tesco had grown after targeting rivals in disarray.

"Tesco won share as disgruntled shoppers switched stores, but it may have overtraded. Many of these shoppers are switching back," he said. Shares in Tesco opened 1.5 per cent lower, but recovered to close 1.4p up at 391.4p. Arch rival Sainsbury's also climbed 1.4p, closing at 322.6p.

The wider FTSE 100 headed back above the psychologically-important 5,000 mark, after a survey showed the US services sector was back in growth for the first time in more than a year.

The US survey followed figures showing the fastest growth among UK services firms for more than two years during September.

After being broadly flat all day, the blue-chip index climbed late in the session, closing up 35.6 points at 5,024.3.

Royal Bank of Scotland was among the biggest climbers, rising more than 4 per cent, in the wake of favourable comments by UBS on third-quarter performance. The Swiss bank noted the better funding environment and a sharp improvement in house prices and arrears levels.

Edinburgh-based RBS, which is mulling a fresh share issue, rose 1.92p to 48.56p.

Barclays was also boosted by UBS, which upgraded the bank, pushing its shares 5.05p higher at 361.8p.

Insurers were also broadly up. RSA Insurance added more than 4 per cent, closing 5.5p higher at 133.2p, after reports that the More Than owner had scrapped plans for a rights issue due to a lack of suitable bid targets.

Standard Life rose 1.2 per cent to 217.6p, while Prudential climbed almost 3 per cent to 589p. Aviva was the odd one out, dropping as it confirmed plans to float its Dutch business, Delta Lloyd. Its shares lost 1.5p to 451.1p, even though the move is likely to raise over 1 billion.

Elsewhere, heavyweight mining companies were in demand, none more so than Eurasian Natural Resources. RBS increased its metal price forecasts, upgrading its rating on ENR to "buy".

Shares in the group topped the FTSE 100, up almost 5 per cent or 38p to 844p. Anglo American also rose strongly, closing up 74.5p at 1,951p.

Oil producers struggled as crude oil dropped below $69 a barrel in New York. Royal Dutch Shell and BP were both on the back foot, closing off 6p at 1,692p and 0.1p at 535.2p, respectively. Cairn Energy bucked the trend, bubbling up 2.4 per cent to 2,690p.

Among the mid-caps, Imperial Leather soap maker PZ Cussons rose 3.5p to 251p, after it said trading had been in line with expectations.

Small-cap Wolfson Microelectronics dropped sharply after warning that lower-than-expected sales to Apple will mean third-quarter numbers will be below forecasts. Shares fell 12.25p to 122.5p.

On Aim, Interbulk, which runs a fleet of containers for the transport of bulk industrial goods, continued its climb on last week's strong trading update. Shares rose 36 per cent to 5.25p yesterday, hitting a high of more than 12 months.