Market Report: Morrisons goes on Citi's shopping list

 

Shares in Bradford's supermarket chain were in danger of being left on the shelf after weak results, but yesterday City scribblers said it was time to put Morrisons in the buy basket.

Citigroup's shop experts reckon there are a number of good reasons to like Morrisons, despite the group losing market share to rivals. They think it now has better sales momentum, and a "nice children's clothing offer and [not being involved in] the horse-gate scandal will lift trading momentum" further.

They rate the shares a buy – up from neutral – and were so keen they upped their share price target to 325p from 280p.

Citigroup, one of the few analysts positive about the grocer, think it has the strongest economic model of the UK listed supermarkets and "over the long term we think Morrisons is well-positioned to extend [this model] to southern England where it remains under-represented."

The shares rang up a 9.3p gain to 276p.

Citigroup's view comes after Morrisons reported its first annual profit decline in six years earlier this month. The note also comes as retail expert Kantar Worldpanel revealed that Morrisons' market share fell to 11.7 per cent in the 12 weeks to 17 March, down from 12.3 per cent a year ago.

Investors were cautious as nervousness around the Cyprus bailout deal and wider eurozone issues continued. There was little cheer on the UK economic front as the CBI index showed that sales growth had tapered off but the FTSE 100 index managed to gain 20.99 points to 6399.37.

There was a spate of bid rumours for a number of stocks yesterday – bored traders had obviously decided it was time to spice things up.

Vague talk about Chinese investor interest surrounded Tullow Oil but Investec's Brian Gallagher rates the stock a sell with a 970p. He is concerned about its divestment/farmdown strategy. Tullow has a partnership with China's CNOOC but the extremely vague rumours think an equity deal with Chinese sovereign wealth could be on the cards. The shares were up 13p to 1,251p.

Deutsche Bank claimed oil giant BP is "overlooked and underappreciated" . Its analysts rate the stock a buy with a 520p price target. They think it will continue to trade at a modest discount to its peers ahead of the resolution of the Deepwater Horizon disaster. The shares trickled up 3p to 462.95p.

Rumours of takeover interest resurfaced for the London Stock Exchange, which some traders said was the target of either private equity or Middle Eastern funds, but most played down the rumours. The shares added 28p to 1,320p.

Kazakhstan copper giant Kazakhmys reported huge $2.2bn (£1.4bn) 2012 loss with an impairment charge against the value of its stake in fellow Kazakh miner Eurasian Natural Resources Corp.

Kazakhmys fell 38.3p to 405.3p, while ENRC was buried at the bottom of the index, down 8.1p to 260p. Some speculated the stock could still be subject to a takeover from one of its shareholders but that wasn't enough to help the shares yesterday.

Mid-cap property agent Savills' was down 41.5p to 534.5p after a 7.8 million placing by Credit Suisse.

Bookmaker Paddy Power got a small upgrade from analysts at Goldman Sachs. They raised their estimates and gave the shares a €64 price target and a neutral rating for shares that added €1.17 to €70.17.

Hong Kong's control of London's only trading floor to operate via open outcry has not ended well for shareholders of tech firm Xchanging.

The technology services group has worked for the London Metal Exchange since 2005 but now this lucrative contract is in doubt. In December, Hong Kong Exchanges & Clearing completed its deal to buy LME.

But small-cap Xchanging said discussions have led to the "modification or termination" of its contract which "reflects the change in ownership".

It added that "cost savings in the business combined with other business initiatives will contribute materially to offsetting any loss of profit arising from the modification or termination of the LME contract". However, the shares reacted with a 6p loss to 136p.

Aim-listed transport software supplier Tracsis jumped 9.5p to 184.5p after agreeing to buy traffic analysis and surveys provider Sky High, whose shares were just that on the news – soaring 5.62p to 14.62p.

Buy

EasyJet

EasyJet is ready for take-off, and analysts at Espirito Santo suggest getting on board now. They cite the low-cost airline's increasing presence in Italy – which is Europe's fourth-largest market for air travel – and its increased focus "on higher yielding markets" as indications that easyJet's share price will rise. Espirito Santo's buy recommendation comes with a target price of 1025p lower than the current 1,059p share price.

Sell

Homeserve

Ditch your shares in HomeServe is the advice from Panmure Gordon. They are predicting that there is "an extremely tough ride ahead for investors" in the home emergency insurance provider. An ongoing FSA investigation, losses in its French warranty business, and continued cuts to UK jobs are casting long shadows on HomeServe's future. Panmure Gordon reiterates a 145p target on shares currently 205.5p.

Hold

Avocet Mining

Sit on your stake in Avocet Mining, Investec recommends. The West African gold miner will continue its exploration project in Guinea after securing a debt facility, and has also improved the delivery agreement on its Inata mine in Burkina Faso. Currently trading at 20.25p, Investec sets its share price target at 24.5p for Avocet.

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