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FTSE falls as Anglo leads miners lower, but Sainsbury and Tesco climb

Discussion in 'Market News' started by Lily, Dec 8, 2015.

  1. Lily

    Lily Forum Member

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    Commodity rout continues to undermine market, but supermarkets bounce

    Leading shares are on the slide as the commodity rout continues, but supermarket shares are bucking the downward trend.

    Sainsbury is up 9.8p at 251.5p, Tesco is 5.75p better at 162.75p and Morrisons is up 3.6p at 149.3p despite Exane BNP Paribas cutting its target price on all three. Investors are taking heart from slightly better food sales in the latest British Retail Consortium figures. Analysts at Jefferies said:

    Food sales are still in decline as customers shop around. Food like for like sales in November saw some marginal improvement but still fell 1.1% we estimate, an improvement on the -1.4% three month and year to date trend.

    UK food retail share prices are back near relative lows, with the first half’s optimism eroded by second half macro industry data showing very weak spending trends and Big 4 recovery efforts stalling. We think there is some room for shorter-term optimism as a number of the structural pressures driving Big 4 share loss should ease over the key Christmas trading period. Moreover, sector share prices look well-underpinned by free cash flow metrics.

    Glaxo has delayed the launch of its hair loss drug Zagallo (dutasteride) in Japan following the closure of a French plant by its supplier Catalent, amidst concerns around product tampering. US-based Catalent manufactures Zagallo, a treatment for alopecia, which is approved only in Japan. Catalent halted production at the plant last month following a request from US regulators after evidence suggested that someone in the plant had purposely mixed the wrong capsules into batches. This is second time Glaxo has suffered supply issues in Japan in recent months - earlier in the year Glaxo had issues with the supply of its hepatitis B treatment Tenozet in Japan, after an explosion in a nearby chemical warehouse in September damaged the production plant in China.

    Shares are down on possible short and stop loss activity after what looks an expensive debt refinance. However, our Investec debt analysts suggest this is not an unreasonable rate for a B+ credit rating. The refinance also extends term and financing visibility in a rising interest rate environment with more balance sheet flexibility for growth.

    It doesn’t seem long ago that the company commentary on funding was that senior debt would be extinguished in the near future. Here we are with the creation of a seven-year £285m senior note. The cost of this is significantly above the debt it replaces. This refi package follows on from the rights issue that funded the additional Peppa Pig acquisition and raised an additional £60m on top. And still we expect Entertainment One to be free cash flow negative in aggregate over the next three years.

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