FTSE 100 movers: Ocado zigzags higher, investors rotate out of defensives
London's FTSE 100 was struggling for direction on Tuesday, with Ocado leading the risers and defensive stocks weighing on the downside.
Ocado shares fell initially but were leading the blue chip index before noon, even though the online grocery specialist's half-year update is likely to result in full year forecasts being cut. The company reported first-half EBITDA down 14% and that costs are likely to be higher in the second half as the huge new customer fulfilment centre at Erith comes on stream, which was mostly assumed, with an extra £9m of share-based payments to senior management in the half, which was not.
Analysts at Societe Generale said they thought 2018 consensus EBITDA could be cut by "5-10% at least" and noted that the Kroger contract in the US has yet to be signed to cover development of 20 CFCs across the States. "Ocado has a lot to do in the coming years, with 23 CFCs already planned for international partners. Although the story is promising, valuation looks excessive to us with the market implicitly pricing 25 CFCs in addition to the 23 already booked."
Sky was lifted by reports that 21st Century Fox is preparing to make a bid of around £25bn in the coming days to both satisfy investor pressure and to outbid rival Comcast. Once it has received final approval from government, Fox will up its bid for the 61% of the broadcaster it does not already own, with its offer priced above Comcast's offer of £12.50 a share, the Financial Times reported.
Hargreaves Lansdown was higher, possibly due to a note from house broker Numis, which put out a note sharing its belief that the savings, pensions and investments group is "a structural growth story which it has been ever since IPO and should remain, possibly for decades to come", with its target price increased to 2,198p. Analysts trumpeted the potential for platform businesses to "increasingly manage a customer's investments and wealth becoming a much greater and more comprehensive financial services offering" and HL in particular, having delivered growth in the most adverse of market conditions, is seen as a "low risk business as well as being a high growth and highly profitable business".
On the downside, Tesco was in the red as it announced that its UK and Ireland chief executive Charles Wilson is stepping down as he recovers from throat cancer. Wilson has been undergoing daily radiotherapy in recent months and had “responded very well” to treatment, Tesco said in a statement, adding that "all the signs are that the treatment has been successful".
More generally, defensive stocks were on the slide again, with the utilities and telecom sectors in particular seeing their stocks decline as investors rotate into cyclicals on a global basis, amid a mini rally ahead of second-quarter earnings season.
"Such behaviour reflects a market mood that is turning more aggressive towards risk-taking, as investors shift back to fundamentals and put trade war fears behind them," said Hussein Sayed, chief market strategist at FXTM.
S&P 500 company earnings are expected to grow 20% in the second quarter, according to FactSet. "This should encourage more appetite for risk in the coming days, unless big negative news related to trade disrupts the optimistic mood," added Sayed, noting that the VIX volatility index was also reflected this positive sentiment, by declining 5% on Monday to trade below 13 for the first time since 22 June.
British American Tobacco was among the defensive fallers, with the added hindrance of increased competition in its markets. Analysts at Citigroup put out a note on the big debate in the tobacco industry around the impact of the Juul, the vaping start-up branded the “iPhone of ecigarettes” that has become fashionable with teenagers and was recently reported to be close to raising $16bn of financing.
"We see good evidence to believe Juul is impacting cigarette volumes in the U S and will continue to do so We are also concerned that a ban on menthol cigarettes is now more likely Juul’s international expansion is a yet another factor making tobacco less predictable than it was," Citi said, adding that the share price declines for BATS and rival Imperial have been "more or less fair".
FTSE 100 - Risers
Ocado Group (OCDO) 1,063.50p 5.14%
GVC Holdings (GVC) 1,093.00p 3.02%
Coca-Cola HBC AG (CDI) (CCH) 2,680.00p 2.96%
Hargreaves Lansdown (HL.) 2,057.00p 2.19%
Sky (SKY) 1,499.50p 2.11%
Smith (DS) (SMDS) 492.00p 2.04%
Sage Group (SGE) 625.80p 1.69%
Next (NXT) 6,002.00p 1.66%
Pearson (PSON) 906.00p 1.52%
Halma (HLMA) 1,359.00p 1.49%
FTSE 100 - Fallers
United Utilities Group (UU.) 744.20p -2.90%
Severn Trent (SVT) 1,949.00p -2.70%
BT Group (BT.A) 227.15p -2.24%
Royal Bank of Scotland Group (RBS) 244.90p -2.16%
Glencore (GLEN) 328.75p -1.94%
Tesco (TSCO) 256.00p -1.50%
National Grid (NG.) 855.60p -1.41%
Carnival (CCL) 4,232.00p -1.35%
British American Tobacco (BATS) 3,913.00p -1.17%
Fresnillo (FRES) 1,130.50p -1.14%