Tesco delivers but FTSE ends four-day winning run

Blue chips snapped a four-day hot streak in London on Thursday, despite strong gains by Tesco, but remained in touching distance of Wednesday’s record highs.

The FTSE 100 Index closed down 18.70 points, 0.2%, at 9,427.73.

The FTSE 250 ended down just 2.40 points at 22,047.30, and the AIM All-Share advanced 2.54 points, 0.3%, at 788.95.

Investors in Tesco received a double dose of good news with better-than-expected first-half trading and a report suggesting that UK retailers are set to escape the top business rate tax band.

Shares in the Welwyn Garden City-based food retailer climbed 5.3%, the biggest riser on the FTSE 100.

Financial Times sources said the Treasury was moving to take large retail premises out of the highest bracket of the property levy after a recent “tense” meeting with chief executives on the issue.

Last year the Government proposed increasing business rates on properties with a rateable value of more than £500,000 to afford making a discount for small retail and hospitality premises permanent.

The British Retail Consortium has said up to 400 stores, including larger department stores, could shut if the higher rate goes through.

The report came as Tesco raised profit guidance after a better-than-expected first half, with the good weather helping to shrug off the impact of rising costs and intense competition.

“Competitive intensity remains elevated. However, in the first half, a better-than-expected customer response to our actions and the benefit of an extended period of good weather have helped offset the cost of our investments,” Tesco said in a statement.

Pre-tax profit at Tesco fell 6.3% to £1.31 billion in the 26 weeks to August 23 from £1.39 billion a year ago.

But adjusted operating profit rose 1.5% to £1.67 billion from £1.65 billion, beating Visible Alpha consensus of £1.56 billion, while adjusted diluted earnings per share jumped 6.8% to 15.43 pence from 14.45p.

Reflecting the better-than-expected performance, Tesco raised full-year adjusted operating profit guidance to between £2.9 billion and £3.1 billion, up from the previous range between £2.7 billion and £3.0 billion.

Jefferies analyst Frederick Wild said Tesco’s strong first half and guidance upgrade “caps a remarkable period of market share momentum, inflationary help, and weather-driven consumer spending uplift”.

Russ Mould, investment director at AJ Bell, said Tesco’s position at the top of the UK supermarket pecking order looks “more entrenched than ever”.

The pound was quoted lower at 1.3415 US dollars at the time of the London equity market close on Thursday, compared with 1.3477 US dollars on Wednesday. The euro stood at 1.1697 US dollars, down against 1.1729 US dollars. Against the yen, the dollar was trading at 147.37 yen, higher compared with 147.15 yen.

On Friday, the Government is preparing for new economic forecasts from the Office for Budget Responsibility (OBR) which are likely to set the scene for tax rises at the November Budget.

The Financial Times said Labour officials fear a productivity downgrade by the OBR alone could put a dent of up to £18 billion in the public finances, contributing to an overall fiscal hole of around £30 billion.

The FT said the OBR will on Friday formally submit to the Chancellor Rachel Reeves its initial pre-measures forecasts for the economy and public finances.

These will provide an early indication as to the shortfall.

In European equities on Thursday, the CAC 40 in Paris closed up 1.1%, while the DAX 40 in Frankfurt advanced 1.3%.

Stocks in New York were mixed at the time of the London close.

The Dow Jones Industrial Average was down 0.2%, the S&P 500 index was 0.1% lower and the Nasdaq Composite 0.2% higher.

The yield on the US 10-year Treasury was quoted at 4.11%, trimmed from 4.13% on Wednesday.

The yield on the US 30-year Treasury stood at 4.70%, narrowed from 4.72%.

Joshua Mahoney, at Rostro, noted the ongoing federal government shutdown appears to be having little impact on market appetite for risk.

But he pointed to a White House memo which warned that the economy loses around 15 billion dollars in GDP for each week the government remains shut, a “sizeable headwind if the deadlock lingers”.

Back in London, 3i Group gained 4.0% after UBS raised the private equity and venture capital company to “buy” from “neutral”, and upped its price target to 4,700p from 4,450p.

UBS believes a slowdown at Netherlands-based retailer Action is “coming to an end”, making 3i’s shares more attractive.

Action is the largest portfolio asset at 3i, which UBS believes trades “as a proxy” for the retailer.

But Experian slumped 4.2% after Fair Isaac, a software firm, announced a new programme which would give mortgage lenders the option to calculate and distribute FICO credit scores directly to customers.

Citi analysts explained that as “things stand today, credit bureaus (Experian, Equifax, TransUnion) sell the data and the FICO score to a tri-merge (merging the three reports).”

The broker noted Fair Isaac’s press release states that it is working to license its algorithm to the resellers, enabling them to pass these on to their customers, implying that this would cut out the margin that the likes of Experian and Equifax make on the FICO credit score itself.

“Our initial reaction is that this is negative for Experian and Equifax,” Citi said.

Analysts at Jefferies estimate that Fair Isaac’s new models could hurt credit bureau earnings by an average of 10% to 15%.

“By introducing a licensing programme for tri-merge resellers, Fair Isaac is effectively taking away the ability of the credit bureaus to mark up the FICO score. For the bureaus to take price, they will now have to directly negotiate with the lenders, as well as compete with each other,” Jefferies explained.

Equifax was also marked down, dropping 9.3%, while Transunion fell 12%.

Fair Isaac shares soared 21%.

BT Group fell 2.5% as Exane BNP cut the company to “underperform” from “neutral” and lowered its price target for the telecommunications provider to 150p from 160p.

Diageo edged up 0.7% on a report that the US is considering easing tariffs on Scotch whisky, a potential boost for the Johnnie Walker owner.

Brent oil continued its weak run, trading at 64.42 dollars a barrel on Thursday, down from 65.53 dollars late on Wednesday.

Gold traded at 3,830.85 dollars an ounce on Thursday, down against 3,862.37 dollars on Wednesday.

The biggest risers on the FTSE 100 were Tesco, up 22.7p at 452.4p, 3i, up 168p at 4,310p, Rentokil Initial, up 9.8p at 387.2p, Croda, up 69p at 2,838p and ICG, up 54p at 2,268p.

The biggest fallers on the FTSE 100 were Experian, down 155p at 3,520p, BT, down 5.8p at 185.7p, Coca-Cola Europacific Partners, down 190p at 6,580p, WPP, down 10.4p at 360.4p and Fresnillo, down 64p at 2,290p.

Friday’s global economic calendar has a slew of composite PMIs readings, including in the eurozone and the UK.

Friday’s UK corporate calendar has full-year results from pub operator JD Wetherspoon.

Contributed by Alliance News