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Tesco and Marks & Spencer top & tail flat FTSE

Tesco and Marks & Spencer top & tail flat FTSE

Marks & Spencer and Tesco topped and tailed a flat FTSE 100 on Thursday morning, as the two retail giants revealed their Christmas performances, while data from China boosted market sentiment ahead of key central bank decisions today.

China reported a jump in both imports (up 6% in December) and exports (up 14%). Both figures, while volatile monthly readings, were much better than economists’ expected, prompting optimism about the strength of the country’s economic growth in the final quarter of the year.

The FTSE 100 tottered around the key 6,100 level, which it breached briefly yesterday, with mixed European markets not managing to duplicate the stronger gains seen in most of Asia and the US overnight. The euro was flat at $1.3062 ahead of today’s European Central Bank policy meeting, where no action is expected. The British pound was a smidgeon lower at $1.6013 with the Bank of England expected to stay its hand when it too announces its monthly policy decision today.

M&S disappoints as Tesco ‘wins’

While M&S (MKS.L) reported poor festive sales, sending its shares down 3.5% to 357p, Tesco (TSCO.L) managed its strongest like-for-like sales growth for three years, earning a place at the top of the FTSE, with shares up 2.9% to 359p.

M&S last night announced its trading figures, earlier than planned after they were leaked.

The worse than expected performance showed group sales increased by 0.6% during the 13 weeks to the end of December, with UK like-for-like sales down 1.8% in what chief executive Marc Bolland described as a ‘challenging and highly promotional General Merchandise market’. Food sales on the other hand were strong.

‘The statement makes clear that M&S Food has had another solid quarter,’ commented Geoff Ruddell of Morgan Stanley. ‘However, sales in General Merchandise are very weak… A lot now rests on the performance of the new General Merchandise management team,’ he added.

In another blow to the shares, analysts at Espirito Santo cut their rating to ‘sell’ from ‘neutral’.

Panmure Gordon were among analysts cutting their target price for M&S shares, though they noted that ‘Private equity interest may also now be piqued again.’

Tesco turnaround

Tesco, meanwhile, reported UK like-for-like sales growth of 1.8%, benefiting from a weak comparative number, but also providing investors with some evidence that it is turning around its core business. The group announced that Chris Bush had been appointed as managing director to run its UK business.

Analysts were naming Tesco as the Christmas victor, with Oriel Securities raising their view on the shares from 'hold' to 'buy'.

‘The crucial like-for-like number is flattered somewhat by Tesco’s dire performance over Christmas 2011, but it does confirm both a return to form – and a decisive victory over rivals Sainsbury’s and Morrisons,’ said John Ibbotson, director of the retail consultants Retail Vision.

Kate Calvert of Seymour Pierce was less convinced. ’There is still much to be done given general merchandise remains a drag and we believe there will be no visibility on whether UK profits have bottomed until the second half of 2013’, she said, reiterating her ‘reduce’ rating on the shares.

Bunzl buying spree

Tesco was competing for top place on the FTSE 100 with Bunzl (BNZL.L) after the outsourcing group announced that it had completed three further acquisitions in South America and the US. Shares rose by 3.4% to 1,050p. ‘Bunzl’s balance sheet remains strong, we reiterate our BUY stance,’ commented Robin Speakman of Shore Capital.

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