London close: FTSE ends higher on weaker pound, Tesco M&A news

The FTSE 100 finished the week in the green as the pound weakened and as Tesco’s shares surged on news of a merger with Booker Group.

London’s top tier index closed Friday’s session up 0.32% to 7,184.49 points.

The pound dropped 0.55% against the dollar to $1.2528 and fell 0.62% versus the euro to €1.1716.

Tesco was the top riser on the FTSE 100 after announcing it has reached an agreement with wholesaler Booker Group - which owns Londis and Budgens – on the terms of a recommended share and cash merger to create the UK's leading food business. Under the terms of the merger, each Booker scheme shareholder would receive 0.861 new Tesco shares and 42.6p in cash, representing a value of £3.7bn for Booker’s ordinary share capital. Booker led the FTSE 250 risers.

“This morning’s merger with food wholesaler and small mini mart owner Bookers will not only help the company drive down costs in the supply chain but also open up a host of new “Metro” type stores that seem to be the hallmark of the new food retail market these days,” said Michael Hewson, chief market analyst at CMC Markets.

“It will inevitably raise competition concerns amongst its rivals given that Tesco already has 28% of the grocery retail market, and as such will give it even more pricing power.”

Shares in rival supermarket J Sainsbury fell following the merger news.

Easyjet was also under the cosh after Goldman Sachs and Davy downgraded their stances on the stock.

Goldman downgraded Easyjet to ‘neutral’ from ‘buy’ and cut the price target to 970p from 1,160p, citing a deteriorating free cash flow outlook. Davy cut its rating on the airline to ‘neutral’ from ‘outperform’ and lowered the target price to 850p from 1,100p.

Iberia and British Airways parent International Consolidated Airlines Group was faring a lot better, however, after Goldman upgraded it to ‘buy’ from ‘neutral’ and lifted the price target to 580p from 490p, citing an attractive valuation and strong free cash flow yield. Davy reiterated its ‘outperform’ on IAG, bumping up the price target to 610p from 460p.

Away from companies, official data showed US economic growth slowed more than expected in the fourth quarter. Gross domestic product rose at an annual rate of 1.9% in the final quarter of 2016, down from 3.5% in the third quarter and below analysts’ estimates of 2.2%.

Household spending, which accounts for about 70% of the economy, rose 2.5% in the fourth quarter, in line with forecasts and following a 3% increase in the third quarter.

“While many will see this as a weak reading, there is much to be encouraged by, with the Q3 figure revised higher by 0.6%, and the Q4 growth rate of 1.9% actually still representing the second highest reading in the past six quarters,” said IG’s Joshua Mahony.

A separate survey showed US consumer confidence in January rose to its highest level since 2004, driven by a more optimistic outlook for the economy and for job growth. The University of Michigan’s consumer sentiment index increased to 98.5 in January from 98.2 the previous month, beating analysts’ estimates for a reading of 98.1.

Meanwhile, US durable goods orders fell 0.4% in December, reflecting a sharp decline in demand for defence aircraft, the Commerce Department revealed. The figures trailed estimates for a 2.6% rise and followed a 4.8% drop in November.

Market participants are now awaiting the outcome of a meeting in Washington between UK Prime Minister Theresa May and US President Donald Trump as they begin to work on a trade deal. A press conference with the two leaders will be held at 1800 GMT.

Market Movers

FTSE 100 (UKX) 7,184.49 0.32%
FTSE 250 (MCX) 18,190.80 0.27%
techMARK (TASX) 3,232.82 0.09%

FTSE 100 - Risers

Tesco (TSCO) 206.55p 9.29%
Fresnillo (FRES) 1,428.00p 4.08%
Smurfit Kappa Group (SKG) 2,109.00p 2.58%
Randgold Resources Ltd. (RRS) 6,580.00p 2.49%
Severn Trent (SVT) 2,262.00p 2.49%
Glencore (GLEN) 327.35p 2.15%
Admiral Group (ADM) 1,805.00p 2.04%
DCC (DCC) 6,190.00p 1.98%
Smith & Nephew (SN.) 1,192.00p 1.88%
Sage Group (SGE) 610.00p 1.84%

FTSE 100 - Fallers

Pearson (PSON) 607.00p -2.41%
easyJet (EZJ) 974.00p -2.11%
Antofagasta (ANTO) 822.50p -1.73%
Sainsbury (J) (SBRY) 254.50p -1.39%
Land Securities Group (LAND) 992.00p -1.39%
AstraZeneca (AZN) 4,239.00p -1.37%
Shire Plc (SHP) 4,389.00p -1.10%
Dixons Carphone (DC.) 317.20p -1.06%
Burberry Group (BRBY) 1,649.00p -1.02%
Standard Chartered (STAN) 781.60p -0.96%

FTSE 250 - Risers

Booker Group (BOK) 212.20p 15.89%
Acacia Mining (ACA) 415.70p 5.48%
Centamin (DI) (CEY) 151.10p 5.37%
Zoopla Property Group (ZPLA) 363.60p 3.83%
Hochschild Mining (HOC) 236.40p 3.05%
Evraz (EVR) 230.80p 3.04%
Kaz Minerals (KAZ) 452.50p 2.96%
Crest Nicholson Holdings (CRST) 498.50p 2.55%
Ferrexpo (FXPO) 143.50p 2.35%
TalkTalk Telecom Group (TALK) 156.40p 2.02%

FTSE 250 - Fallers

Nostrum Oil & Gas (NOG) 448.70p -4.45%
Carillion (CLLN) 219.80p -3.30%
Berendsen (BRSN) 828.50p -3.21%
Restaurant Group (RTN) 285.50p -2.79%
Millennium & Copthorne Hotels (MLC) 446.90p -2.34%
Henderson Group (HGG) 222.10p -2.33%
Petra Diamonds Ltd.(DI) (PDL) 148.60p -2.30%
Hill & Smith Holdings (HILS) 1,136.00p -2.07%
IP Group (IPO) 191.00p -1.95%
McCarthy & Stone (MCS) 164.60p -1.85%