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Supermarkets surge on Morrisons' Christmas cheer

Morrisons reports first rise in sales for three years, while overall figures for the supermarket sector are less bad then feared.

 
Supermarkets surge on Morrisons' Christmas cheer

Shares in supermarkets have rallied after sales figures for the big retailers over the Christmas period were less bad than feared.

Data from market researcher Kantar Worldpanel showed sales across the British grocery period fell 0.2% over Christmas compared to the previous year.

The figures showed Sainsbury's (SBRY) was the best performer of the 'big four' supermarkets, as the only one which grew market share over the period. Shares in the supermarket were up 3.1% at 250.8p.

Shares in Tesco (TSCO) rose even higher, up 5.3% at 153.1p and topping the FTSE 100, with its sales decline of 2.7% better than the disaster some had feared. The UK blue-chip index was up 47 points, or 0.8%, at 5,919.

On the FTSE 250, shares in Morrisons (MRW) surged 9% to 166p as the supermarket reported its own results, showing the first rise in sales in three years. Sales excluding fuel increased by 0.2% in the nine weeks to 3 January.

David Stoddart, analyst at Edison Investment Research, said the Morrisons figures represented 'big news'. 'Given the extent of deflation in the period and weather disruption in its northern heartland, negative like-for-likes seemed more likely,' he said.

Signs of a turnaround follow chief executive David Potts' change in strategy, selling off convenience stores and concentrating on the shopping experience at its main supermarkets.

'These results have led to investors asking whether the group's new strategy is starting to work and help it fight off the threat of competition, particularly from Aldi and Lidl,' said Graham Spooner, investment research analyst at The Share Centre. 'Investors should appreciate that the full effects will take time and the new strategy remains a work in progress.'

Jefferies analyst James Grzinic, who rates the shares a 'buy', said the results suggested Morrisons was at the cusp of a turnaround in performance.

'With a senior team now in place, the capital structure in a very different place relative to peers, and the trading platform benefiting from sharper pricing and a better executed store estate (with another seven supermarkets now set to close), the group appears in great shape to deliver from here,' he said.

House builders were also in the ascendancy, as Jefferies analyst Anthony Codling argued the sector would continue to outperform in 2016.

'We start the year with a high level of conviction that the price of the UK house builder shares will outperform the overall stock market during 2016,' he said.

'A structural shortage of supply coupled with a very pro-ownership 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.'

FTSE 100 risers included Berkeley (BKGH), up 4% at £36.78, and Barratt Developments (BDEV), 2.9% higher at 611.5, while on the FTSE 250, Galliford Try (GRFD) rose 3.3% to £15.12 as Codling upgraded the trio of stocks to 'buy' from 'hold'.

Among 'mid cap' stocks, Debenhams (DEB) was the biggest riser, up 15.7% at 76.5p, as the retailer surprised with its Christmas trading figures, outshining the dull festive season reported by rivals Marks and Spencer (MKS) and Next (NXT).

Underlying sales rose 1.9% over the 19 weeks to Saturday, well ahead of analysts' expectations of a 0.3% rise.

'Debenhams looks to have been better positioned than some of its peers with regards to the weather, and had a reduced range of stock in weather-sensitive categories, but avoided having stock levels so low that it impacted sales through poor availability, which hurt both Marks and Spencer and Next,' said Tom Gadbsy, analyst at Liberum.

Investors were less impressed with a trading update from Greggs (GRG), down 7.9% at £11.28, which showed like-for-like sales rising by 4.7% in the year but slowing to 2.3% in the fourth quarter.

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