Market Report: City warms to Sainsbury's Argos deal

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Scribblers at Deutsche Bank made Sainsbury’s look cheap as chips as it became the latest broker to warm to its takeover of Argos owner Home Retail.

Shares in the supermarkets group were 4.2p fresher at 293p as Deutsche upgraded to Buy, suggesting that the current price implied it would fail to integrate Argos into its existing stores.

“The share is priced for material downgrades in the near term, but is not reflecting the earnings accretion we expect from the Argos acquisition over the long term,” analyst Niamh McSherry said.

She predicts Argos will top up Sainsbury’s profits by around £86 million in 2019 and reckons it will only add nothing to the bottom line if Argos’s sales dive 20% by then.

Having initially missed out on the rally enjoyed by rivals Tesco and Morrisons this year, Sainsbury’s is now up 15%, squeezing out short-sellers.

Tesco improved 4.5p to 189.5p as ratings agency Fitch upgraded its outlook from negative to stable. Morrisons was off 0.4p at 190.8p after bets against the embattled group hit new highs, with short interest now up at 14.4%.

A mixed bag for earnings stateside, including disappointing results for Google parent Alphabet, sent the bulls into hiding as the FTSE 100 lost 40.0 points to 6341.44.

Housebuilders were on the up as Liberum said it saw “little downside in the sector” after the share price slumps. Persimmon, 36p higher at 1918p, and Barratt, up 9.89p at 519.89p, were upgraded, but only to hold as the broker warned that “not all Brexit risks are priced in”.

UBS ran the rule over the touted takeover of Entertainment One, up 1.4p at 183.4p, by ITV, down 1p at 226.5p, and said a full buyout, including the Peppa Pig owner’s film assets, would increase ITV’s production revenues to 44% from 28% last year.

Saga shareholders breathed a sigh of relief when the stock overhang was removed. Acromas, the vehicle of private-equity groups Charterhouse, CVC and Permira, sold almost a third of the over-50s insurer-cum-holiday group in a placing worth £690 million, which lifted the shares 9.74p, or 5%, to 211.14p. This was good news for chairman Andrew Goodsell, who snapped up  £5 million of stock.

On AIM, Zoltav Resources, the Russian oil firm controlled by Chelsea FC owner Roman Abramovich’s son Arkady, rose 1p to 39p as it turned its first operating profit last year, though revenues were “significantly affected” by the devaluation of the ruble.

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April 23, 2016 |
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