Market Report: Broker breaks ranks to back Sainsbury’s Home Retail Group bid

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It took a while but Mike Coupe has finally found a fan of his £1.3 billion takeover of Home Retail Group — which is just as well as the deadline for Sainsbury’s to make a firm offer is approaching fast.

While many in the City remain baffled by the supermarket chief’s swoop for the Argos owner, broker Exane BNP Paribas is warming to the £1.3 billion, cash-and-shares deal.

Analyst John Kershaw lifted his rating to outperform and urged clients to stock up on shares in Sainsbury’s, 9.8p fresher at 259.4p.

He argued that their complementary property portfolios are “the swing factor” and could cut costs by as much as £200 million, almost double what Coupe claimed was possible.

“Whether Sainsbury’s can really grow Argos remains moot, but it can give the business more reach,” said Kershaw, who added that around 320 of the supermarket’s stores share a postcode with the catalogue retailer.

Sainsbury’s, which has barely risen this year despite strong gains from rivals Tesco and Morrisons, has until 5pm on Tuesday to make a firm bid or walk away.

The global stock market rally showed no sign of slowing with oil prices stable, helping the FTSE 100 put on 57.20 points at 5919.37 — a rise of 1%.

The “vampire squid” that is Goldman Sachs sucked the life out of Old Mutual, down 1.2p to 165.3p, when it dropped its buy tip on the South African financial-services giant. 

Goldman suggested weakness in the rand could mean Old Mutual struggles to afford to pay its dividend. 

Investors hitched a ride on Auto Trader, up 13.5p to 374.8p, as it raised its full-year profit guidance to between £169 million and £171 million, stripping out exceptional costs, telling shareholders business is booming.

The online second-hand car dealer is using profits to reduce its debt pile and should be in a position to return cash to investors in the near future.

That looks even more likely with David Keens on the board, the long-serving, former finance director of Next, the High-Street fashion group which is well-known for its shareholder payouts. 

The strong update lifted traditional car dealers Inchcape, up 17.5p to 702.5p, and Pendragon, which raced ahead 1.75p to 37.25p.

HSBC’s upgrade to buy sparked a rush for shares in FTSE 250 electronic parts distributor Electrocomponents, 14.5p brighter at 224p, while AIM-listed UK Oil & Gas Investments rose another 0.2p to 2.17p after more encouraging oil flows at the so-called “Gatwick Gusher” well near London’s second airport.

Source Article from http://www.standard.co.uk/business/market-report-broker-breaks-ranks-to-back-sainsbury-s-home-retail-group-bid-a3182716.html

February 18, 2016 |
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