Retail lights up FTSE as Morrisons, Ocado strike deal

(Update) The FTSE 100 once again extended its lead after a good start to trading on Wall Street.

The Dow Jones Industrial Average looked set to chalk up its 10th consecutive rise, gaining 60 points, or 0.4%, to 14,516 while the S&P 500 added six points or 0.4% to 1,560.

This came after new figures showed the four-week moving average for new unemployment claims in the US had fallen to a five year low of 346,750.

Approaching the close, the FTSE 100 traded 49 points or 0.7% higher at 6,530, led by Aggreko, up 6.7% after the portable power company signed a deal with Mozambique and Namibia (see below).

09.20: Retailers help shares higher

Strong corporate numbers from companies including Home Retail Group (HOME.L) and Ocado (OCDO.L), as well as some buying after steep falls yesterday, helped London shares higher on Thursday morning.

Following on from gains in the US, where strong retail sales numbers boosted sentiment, European markets moved confidently ahead. Britain’s FTSE 100 rose by 0.4% to again surmount the 6,500 level. French and German benchmark indices were faring even better, up. 0.6% and 0.7% respectively.

Asian markets had also taken their cue from the US, moving mostly higher, with Japan’s Nikkei index up 1.1% after the lower house of parliament approved prime minister Shinzo Abe’s nominations for leadership of the country’s crisis-fighting central bank.

In London, Homebase and Argos owner Home Retail Group was among the top performers, with shares up 13.6% to 151p to lead the FTSE 250 after predicting pre-tax profits will come in higher than expected, at around £90 million. Cantor Fitzgerald analyst Freddie George, noting that Homebase had likely picked up market share from rival B&Q, upgraded his price target from 115p to 125p, though maintained his ‘hold’ recommendation.

George said there was a chance that with market confidence increasing a private equity group could swoop, where Homebase is still ‘structurally challenged’ with a decline in profits at Argos unlikely to be stopped.

Morrisons itself reported a disappointing 7.2% decline in pre-tax profits, but the shares rose 2.5% to 278p with the news that the supermarket group would launch its long-awaited online service next year with Ocado. Investors were also pleased with a 10% increase in the dividend.

Many in the City remain sceptical of Ocado’s business model.

Clive Black of Shore Capital noted that ‘both parties go out of their way to state that it does not involve a partial or whole interest in Morrison's acquiring a stake in Ocado’.

Black warned that the industry was ‘bypassing much of what Ocado stands for’ and the company still ‘has it all to prove’.

But Tom Ewing, manager of the Fidelity UK Growth fund, said the deal showed Ocado's competitive advantage. 'The mistake made by many has been to treat it as just another capital intensive food retailer. The proposed deal with Morrisons revealed this morning is the first public acknowledgement by a competitor that Ocado’s knowhow has value and that years of investment and trial by error has perhaps not been in vain.'

Prudential (PRU.L) shares pushed higher again, adding to yesterday’s 9% gains with a further 3.8% move to £11.68. Investors are buying into the shares after the announcement of a 16% dividend hike and all-round show-stopping 2012 performance, particularly in Asia.

Aggreko (AGGK.L) led the FTSE 100 higher with a 4.8% gain to £19.28 after the supplier of portable power equipment announced a deal to supply power to Mozambique and Namibia. Mike van Dulken, head of research at Accendo Markets, said the contract win would help bolster interest in the company, which had begun to win back investors with its full-year results this month, following a damaging profits warning in December.

The pound continued to move higher after yesterday’s gains, up 0.1% against the dollar and euro to $1.4937 and €1.1528 respectively.

See our FTSE data pages for more of today's risers and fallers