Market Report: Punters cash out on blue-chip retailers

Investors rushed to the check-out to cash in their retail shares yesterday just after high street titans Next and Marks & Spencer reached 2013 highs.

Traders said punters had decided it was time to take profits after sales data showed the fastest July growth for retailers in seven years, according to the British Retail Consortium.

The sunshine has been a boon to shops selling clothes and Next, Marks & Spencer and the luxury group Burberry all reached their highest points in 2013 in the last few days.

Until the sell-off yesterday, Next was up 12 per cent since mid-June, M&S had gained around 16 per cent and Burberry was up 22 per cent over the period.

Michael Hewson, an analyst at spread-better CMC Markets, said: “In a week where we’ve seen retail sales numbers come in ahead of expectations, high-street retailers are coming under some pressure with Marks and Spencer, Next and Burberry all slipping back from multi-month highs, as investors book some profits.”

M&S was 9.7p weaker at 476.4p, Next lost 64p to 4,934p and Burberry dipped 16p to 1,547p.

Despite the blip for retail stocks on the blue-chip index, the wider market was powering ahead on further strong data out of China.

News of moderate inflation in China was a reason to invest in equities, following good import and export data the previous day. Jonathan Sudaria, an analyst at spread-better Capital Spreads, said: “Evidence is growing that the Chinese government’s attempt to ‘fine-tune’ economic policy to foster a stable recovery, as opposed to stimulating an unstable one, may be working.”

The FTSE 100 soared 53.71 points to 6,583.39 in response.

Miners remained attractive for a second day. If China, the world’s biggest metals consumer, is doing well then punters pile in on the hope their fortunes look fairer. Mexican precious metals miner Fresnillo was 78p up at 1,035p and gold miner Randgold Resources rose 302p to 4,722p.

Tesco said it is merging its 131 stores in China with the country’s second-biggest hypermarket chain and it collected 5.9p to 375p.

Bookie William Hill bolstered its Australian business and agreed to buy online betting business tomwaterhouse.com for £64m. Australia’s Waterhouse is famous for his successful online betting business and is a also regular sports commentator on television in the country.

Analysts at Investec said the move builds on William Hill’s purchase of Sportingbet Australia earlier this year but the new business has limited crossover with the Sportingbet/Centrebet databases and tomwaterhouse.com has 75,000 active customers. Mr Waterhouse said he will stay with William Hill Australia post the deal and Investec awarded William Hill a buy rating with a 540p price target but the shares declined 2.2p to 444.4p.

Meanwhile, over on the mid cap index, the potential for more business with a multi-billion dollar New York-based fund is a reason to buy into London investment manager Henderson, analysts at UBS argued. UBS said that Henderson’s relationship with TIAA-CREF, the New York-based Teachers Insurance and Annuity Association College Retirement Equities Fund that manages $520bn (£335bn) of assets, could be expanded while Henderson is also likely to benefit from the new terms agreed with Phoenix Group, for whom it manages around £6bn of assets.

Henderson announced that it intends to merge its real estate business into a new joint venture with TIAA-CREF in June, and UBS indicated that the relationship will grow further.

Analysts at the Swiss bank said that Henderson traded at a discount to its UK peers according to most metrics “despite now showing better operational momentum” so they rated it a buy, up from neutral with a 180p price target. Punters agreed and Henderson jumped 7.1p to 175.8p. Analysts at RBC Capital and JPMorgan also raised their price targets for the fund manager.

AIM-listed Sound Oil said its plans for the Nervesa gas well in Italy are on track and well testing will start at the end of the month. The oil specialist jetted upwards in early trade but finished the day flat at 10.375p.

Liberian gold miner Hummingbird Resources reported good drilling results from its Dugbe 1 project and it moved up 4.75p to 33.25p.

Buy

Tesco

Snap up shares in Tesco, Jefferies advises. The broker thinks the supermarket’s decision to enter a joint venture in China is a step in the right direction to rationalise its portfolio. Jefferies thinks Tesco could “fast-track its transformation from a sales growth-focused business into a highly disciplined, cash flow and returns-driven retailer” by increasing this rationalisation so it rates it a buy with 440p price target for shares that are 375p.

Sell

Rotork

Flog shares in Rotork, Liberum Capital suggests. The broker is concerned the industrial manufacturer will not be able to sustain its margins in the long term as the business continues to grow. Liberum thinks the shares are now valuated on multiples that are at a significant premium to peers, so it rates it a sell with a 2,500p price target for shares that are 2,906p.

Hold

PZ CUssons

Hang on to PZ Cussons, Investec insists. The broker acknowledges the soapmaker has had to contend with tough conditions in Africa but its cost cutting has helped it improve profit this year. So Investec raised its target price to 441p for shares that are 398.7p.