Market Report: Supermarkets fall as Exane BNP Paribas claims "something has got to give"

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What’s the secret sauce for fixing the supermarket groups?

There isn’t one, according to analysts at Exane BNP Paribas, who disappointed the beleaguered Big Four by arguing that the real solutions are “better retailing and less space”.

“That means carve-ups and disposals/closures are more likely over time. Morrisons is the prime candidate,” said Exane’s John Kershaw.

The analyst thinks that with Aldi and Lidl eating into market share and profits, “something has to give”. 

While mergers are “an option” for Morrisons — with a tie-up with Sainsbury’s the most logical on paper — he reckons it is more likely to retreat to its Northern heartland and sell its stores in London and the south-east.

What’s behind the rise of discount supermarkets?

Kershaw predicted more pain for the biggest chains.

Tesco fell 1p to 161.6p as he cut his target price by 15% to 195p, Sainsbury’s dropped 0.8p to 244.2p after the broker trimmed his target by 9% to 250p, while Morrisons slipped 0.85p to 146.75p with Exane’s target price 17% lower at 125p.

Last month, Asda boss Andy Clarke said he expected some form of industry consolidation to cope with the rise of the German discounters, but Sainsbury’s chief executive Mike Coupe played down the possibility, arguing that it would leave groups with too many stores.

Stocks were back on form after a rout at the end of last week, as the FTSE 100 put on 33.92 points to 6272.21 with traders convinced that the US Federal Reserve will pull the trigger on an interest-rates hike next week.

Aerospace engineer Meggitt, which along with Morrisons and G4S is set to drop out of the FTSE 100 this month, said it would grow organically at “low to mid-single digits” in 2016, reassuring investors about trading in a tough market. The shares lifted 1p to 378p.

Traders stocked up on Home Retail Group, 3.01p richer at 109.41, after weekend reports suggested French DIY retailer Leroy Merlin is considering a bid for its Homebase chain.

Derwent London rose 64p to 3791p as the central London property investor sold Wedge House in Southwark for £33.5 million.

On the junior market, InternetQ recovered 16.38p, or 26%, to 78.38p after issuing a lengthy riposte to allegations about its business, drawing comparisons with another Greek firm, Globo, whose executives admitted to fraud in October.

Cenkos tumbled 12p to 164p on the back of reports that it handed over a batch of documents to the SFO as part of its probe into Quindell, the insurance-software firm advised by the City outfit.

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December 7, 2015 |
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