Market Report: New share boost is delivered by Ocado

 

The online grocer Ocado is best-known for its delivery vans on the UK's well-heeled suburban streets. But until recently it has often been in the red column of heavy fallers on the stock market since floating at 180p in July 2010. The loss-making firm looked healthier after its confirmation of talks with supermarket Morrisons over licensing its technology sent its shares soaring by nearly a quarter on Thursday. And yesterday the good times kept on rolling, ensuring its all-time low of 53p in December 2011 disappeared further into the rear-view mirror of its vans.

Speculation about more-ambitious potential corporate action with Morrisons helped push up shares in the Hertfordshire-based group, which delivers Waitrose and own-brand groceries. Ocado rose by 13.3p to 183.3p yesterday to surpass its debut price and it was not the only grocer in the spotlight.

Ahead of its trading update on Tuesday, Sainsbury's jumped by 4.8p to 362.8p as analysts anticipated an improved performance. The grocer is forecast to post underlying sales growth of 2.3 per cent in its fourth quarter, which would mark an improvement on lacklustre growth of 0.9 per cent in the previous three months.

Elsewhere, the market leader Tesco fell back by 0.8p to 385.2p, just off Thursday's 12-month high. Rival Morrisons came off by 4.9p to 271.3p, following a rise on Thursday and a recent rally, despite falling annual profits and dire trading. That said, Morrisons' investors may have suffered indigestion after chewing over the prospects of a pricey deal with Ocado. Investors may also have been swallowing the fact that its fourth-quarter sales declined sharply to be down by 4.1 per cent, which leaves it a country-mile behind the growth curve of its big rivals.

The grocery gyrations came on a day when the FTSE 100 fell by 39.8 points to 6,489.7. Despite this, Credit Suisse yesterday raised its year-end target for the blue-chip index from 6,600 to 7,000 points, which would take it beyond its all-time high just before the turn of the Millennium Eve. In those heady dot.com-bubble days, the leading index hit 6,930point on 30 December 1999.

Angus Campbell, the head of market analysis at Capital Spreads, said: "Yesterday saw for the second time this week the FTSE 100 suffer from a bout of profit taking as sellers pushed the index back below the 6,500 level after some bad confidence data out of the US put the pressure on." The top-dog on the FTSE 100 yesterday was Hargreaves Lansdown, the financial advisory group, which surged by 34.5p to 929.5p.

The second-highest-flyer was International Airlines Group, the parent company of British Airways and Iberia, following an upbeat note about its prospects from Morgan Stanley. Its analysts have moved their recommendation to "overweight" from "equal weight" at the company, which this week reached a compromise deal with unions to reduce jobs cuts to 3,141 staff. Morgan Stanley expects IAG's earning to benefit from a "reshaping toward a higher weight of BA traffic benefit", compared with its turnaround plan for Iberia.

Penelope Butcher, Morgan Stanley's analyst, said: "We see the IAG business model as reshaping around the BA engine." She added: "Iberia's network is to be downsized by 15 per cent this year, headcount to be reduced by approximately 20 per cent, and cash flow loss, currently €1.9m daily, to be stemmed in the second half of 2013 when operating cash flow is targeted at break-even."

These comments helped the airline group soar by 9.5p to 272.2p. In contrast, bank HSBC suffered mild-turbulence yesterday to put it among the biggest fallers on the leading index, down 19.9p at 720.1p. This appeared to be profit-taking among investors at the financial behemoth, which has seen its shares rise by 86.4p so far this year. HSBC has remained a popular stock among fund managers, despite it posting pre-tax profits down by 6 per cent to $20.6bn last year, which was below City analysts' consensus forecast of $23bn.

Similarly, a strong run so far in 2013 came to an end yesterday at fund specialist Aberdeen Asset Management, which claimed the wooden spoon for yesterday's biggest faller on the FTSE 100. The company, which has £193.4bn funds under management, saw its shares fall by 13.3p to 411.3p.

It was a better end to the week for Lloyds, the part state-owned bank, which Numis rates as a "buy". Its analysts reckon the investment case for the Black Horse bank is solid and that its profitability prospects are undervalued. Mike Trippitt said: "The core banking business alone is worth more (valued at 55p) than the current share price." Despite this recommendation, Lloyds slipped by 0.2p to 50.5p.

Buy

Standard Chartered

There's nothing like a bit of enthusiasm and Investec has it in spades for Standard Chartered. "We don't like banks very much, but we do like Standard Chartered," the broker says, adding that its "key attraction" is that it's just such good value at its present price of 1,763p per share. Investec gives a target price of 1,900p.

Sell

rentokil initial

Cantor Fitzgerald finds the Queen's ratcatcher about as toxic as one of its poisons. It gives three reasons to dump it: first, top line growth is subdued; second, it's exposed to the Continent; and third, City Link, its courier business, remains a drag. The shares are 99p a pop with an 80p target.

Hold

bwin.party

Hang on to bwin, Canaccord Genuity suggests, though the broker brands the online gaming site a "party pooper". Canaccord says the shares, at 114.9p yesterday, have "bounced vigorously on the prospect of the US market opening up", though this will not generate material profits until 2015. It has 122p target on the stock.

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