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FTSE recovers as supermarkets and housebuilders lead the way

Discussion in 'Market News' started by Lily, Jan 12, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Morrisons rises after update while builders boosted by positive Jefferies note

    Supermarkets and housebuilders are leading the way as the UK market tries to break a four day losing streak.

    Better than expected growth from Morrisons has pushed its shares up 13.6p to 165.9p. Meanwhile Sainsbury, 6.7p better at 250p was lifted by news of a good performance over Christmas, according to Kantar Worldpanel figures. Tesco shares also rose, up 9.15p to 154.6p.

    We start the year with a high level of conviction that the price of the UK housebuilders shares will outperform the overall UK stock market during 2016. A structural shortage of supply coupled with a very pro-homeownership Government and rising wages, provides fertile ground for share price growth, in our view. Cash generation is also high and highly visible and, in our view, dividend streams also underpin valuations...

    We have sufficient confidence to increase our price targets by an average of 18%, we believe that scarcity of supply of homes, mortgages and potential bank rate rises will favour the Help to Buy assisted new build market and raise the prospects of upgrades during 2016.

    We reiterate overweight on IAG, with target price 750p. Having raised its midcycle margin and cashflow targets at the November capital markets day, and paid its first dividend in December, IAG continues to make excellent progress towards sustainable profitability, with clear scope for further cost savings. In 2016, the company will receive a major boost from lower fuel and, with capex guidance recently lowered, we think special dividends could be within sight.

    Greggs’ interim management statement revealed trading had been tough in the fourth quarter as business flagged after a strong October, and as a consequence, results should be in line with expectations. We are top-of-range, so we are trimming our earnings per share forecasts by 1% to 55.3p for 2015 and by 3% to 58.4p for 2016.

    We have shaved our target price by 25p [to £13.25] to reflect the downgrades but we retain our buy recommendation, as we believe there’s still plenty of momentum within the business.

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