London Report: Tesco drags FTSE lower as analyst downgrades hit
ANALYST cuts prompted a rush to the exits for investors in retailer Tesco, weighing on the blue-chip FTSE 100 yesterday and dragging it further away from a recent multi-year high.
Nomura, Oriel, Cantor and Jefferies were among those brokers yesterday that cut ratings or price targets on Tesco, the world’s third-largest retailer, just a day after it flagged price cuts and scaled back its operating margin goal.
That would have pleased the many investors who had borrowed the stock and sold it on, betting on a share price fall, heading into the numbers. Over the last week the number of shares on loan had jumped by a quarter.
“It’s a reasonable size number and shows people were anticipating some bad news,” said David Lewis at Astec Analytics, which tracks stock-lending data, adding that the current 133m shares out on loan was near a record high.
Demand to sell out of the stock was strong – at twice its three-month daily average – although by the close it had pulled off its lows to trade down 2.8 percent, its biggest daily fall since September 2013.
“You have to ask why investors need to be in this stock at the moment. I would advise caution on the stock,” said Graham Jones, analyst at Panmure Gordon. “At least in the next six months, I don’t see what’s going to change at Tesco to make investors’ sentiment more positive.”
The scale of the weakness in Tesco weighed on the broader European retail sector and caused the Stoxx Europe 600 Retail index to end down 0.8 percent and lag most sectoral peers.
Tesco’s heavy weighting within the FTSE meant it acted as a drag on the parent index and left it down 0.5 per cent, or 31.3 points, at 6,799.15, even though fund flows into Europe remain positive and many expect the fresh 14-year closing high hit on Monday to be extended in the coming weeks.
“If we test 6,850, then we could be set for higher highs and the next target would be the all-time high of 6,950.60. But if we fail to break through the 6,850 level in the near term, the market would become vulnerable to more profit taking.”
Also feeling investors’ ire, in spite of plans to issue a special dividend, was broadcaster ITV, down 2.2 percent in volume nearly four times its three-month average that made it the most traded blue chip.