Market report: Sainsbury's slips on Argos Brexit fears

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AS most investors were sitting on their hands ahead of the US election result, some quietly offloaded shares in Sainsbury’s as concerns about its heavily criticised £1.4 billion takeover of Argos re-emerged.

Before tomorrow’s first-half results, analysts at HSBC predicted that the post-referendum slump from the sterling could spell bad news for its new division. HSBC’s retail analyst David McCarthy argued that the bulk of Argos’s purchases are made in US dollars and thinks it will struggle to follow in the footsteps of others in raising prices for shoppers.

“Argos has minimal pricing power, meaning it will struggle to pass on cost increases. It seems that more that 100% of the synergies identified by Sainsbury have been wiped out by sterling’s depreciation,” said McCarthy, who remains sceptical of the acquisition.

“We are not convinced that management would have bought Argos at the price it paid, if it knew the UK would vote to leave the EU.”

Shares in Sainsbury’s, which revealed at the end of September that same-store sales excluding petrol were down 1% in the first half of the year, were off 2.2p at 253.4p.

On the wider market, the wilds swings of the past two trading sessions were a distant memory, with the FTSE 100 up just 5.26 points at 6812.16 and trading volumes below average.  

One market maker said: “Normally in the first 10 minutes of trading you see hundreds of quotes flashing across the screen, but today there weren’t many at all.”

Lloyd’s insurer Lancashire fell 5p to 721p after UBS told clients that this year’s 15% surge had left it overvalued.

Among the minnows, an after-hours funding announcement and gloomy sales update from fitness-tracking app group Cloudtag left investors short of breath. Its shares on AIM dived 3.47p or, or roughly 25%, to 10.4p.

Avocet Mining rose 14.25p to 71.75p in relief after a judge in Burkina Faso ordered that the seizure of a gold shipment worth £1.8 million by disgruntled ex-workers be lifted.

The gold-mining minnow said it is working to recover the gold and plans to resume operations at its mine later this week.

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November 9, 2016 |
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