investors' corner
The Market
Leading shares ended another strong session just below their best levels for the day, bounding higher in the afternoon in tandem with Wall Street, in reaction to a benign May US jobs report which eased worries over US interest rates. At the Friday close, the FTSE 100 index was 155.9 points higher at 6,626.4, just below its late afternoon peak at 6,634.9, and well above an opening low of 6,455.5. All the broader FTSE indices bounded higher, most notably the techMARK 100 index that surged 272.9 points to 3,634.95. Volume improved after the US data release, with 1.8501 billion shares traded in 120,414 transactions.
London shares started modestly weaker as profit takers attempted to control the early direction, with some caution also occurring ahead of the key May US jobs report. However, the downwards pressure was short-lived, and the benefits of the strong overnight gains on Wall Street soon kicked in to turn UK shares around, although overall interest was constrained by uncertainties over the jobs data. Technology, media and telecom (TMT) issues once again carried the baton for the FTSE 100 index, rebounding once more in line with the strong gains from the Nasdaq index - which scored its fifth largest points rise ever.
A lack of any UK economic news to take the shine off the blue chip gains on Friday, and a scarcity of corporate news also kept leading shares buoyant throughout the morning session and into lunchtime. However, once the weaker-than-expected US jobs data was unveiled, the FTSE 100 index took off, jumping strongly in tandem with S&P futures, which indicated another surge on Wall Street in reaction to the easing of worries over further US interest rate hikes.
US non-farm payrolls rose 231,000 in May, lower than the 388,000 consensus forecast, while the jobless rate rose to 4.1 per cent, up from 3.9 per cent in April, against expectations that the figure would remain unchanged. The rise in US hourly earnings also slowed last month, just rising 0.1 per cent in May against the 0.4 per cent gain posted in April. New York shares lived up to expectations, as bargain hunters moved in to pick up recently depressed stock, with similar patterns seen in London.
By the close in London, the DJIA was 154.55 points firmer at 10,806.75, while the Nasdaq index surged 188.57 points to 3,771.07. TMT issues dominated on the UK blue chip gainers' list reflecting Nasdaq's surge.
CMG topped the FTSE 100 gainers list, up 183 at 1,176, continuing to benefit from factors associated with the completion of its Admiral acquisition. Baltimore, ahead 69-1/2 pence at 581-1/2 pence, and Psion, up 77 pence at 657 pence, both contrived to confound expectations that both will make swift exits from the FTSE 100 index.
ARM Holdings, ahead 72 pence at 700 pence, also benefited from a repetition of its "strong buy" rating and 1,000 pence price target by Morgan Stanley. Kingston Communications firmed 50 pence to 650 pence after naming Ian McKenzie as its chief operating officer. Reuters also saw strong demand, ahead 110 pence at 1,135 pence supported by an initiation of coverage from CSFB with a "buy" rating.
Aside from TMT stocks, selected "old economy" issues also saw interest. Capita Group jumped 90 pence to 1,600 pence, lifted by news of an upgrade to "add" from "hold" by HSBC Securities, with a £16 price target. Sainsbury bounced higher after this week's post-results sell-off, adding 17 pence to 289 pence, helped by news of an upgrade from WestLB Panmure to "neutral" from "underperform" on the view that the stock has been oversold. Sainsbury was also helped by evidence of share buying by its chairman, Sir George Bull. BP Amoco firmed 17 pence to 625-1/2 pence lifted by reports that ABN Amro has upgraded price targets for the oil majors following an increase in crude price estimates. P&O was the biggest blue chip faller, down 81-1/2 pence at 644-1/2 pence after first-quarter results from its Cruises business failed to excite. Although operating profit was up four per cent the group warned that additional capacity and a more competitive US market would mean that net revenue yields are likely to be lower in 2000 than in 1999. Dealers said estimates were set to be trimmed for P&O as a results of the Cruises news, but "buy" recommendations were maintained by Dresdner Kleinwort Benson, WestLB Panmure and HSBC Securities.
BAA shed 9-1/2 pence at 480-1/2 pence after news that the group has commenced action in the High Court seeking to terminate its contract with Eurotunnel regarding retail operations at its terminals, and seeking damages for misrepresentation and breach of warranty. BAA is also due to report full-year results on Monday.
Banking issues were weak with some "old economy" switching: Abbey National fell 13 pence to 892 pence, Standard Chartered lost 12 at 857, and Royal Bank of Scotland shed 16 pence to 1,100 pence. Barclays, down 31 pence at 1,706 pence, also reflected today's share buyback moves and yesterday's downgrade from Commerzbank Securities following the group's first-quarter trading update. Royal & Sun Alliance shed 16-1/2 pence to 399 pence reflecting news of a downgrade in rating by Dresdner Kleinwort Benson to "reduce" from "hold".
Technology stocks closed sharply higher, as some investors took lessened US interest rate fears as their cue to recoup the losses of the past six to eight weeks. The London techMARK closed up 272.94 points, or over eight per cent, at 3,634.95, while in New York the Nasdaq Composite was up 201.63 to 3,784.13 by 5.18pm on Friday, fuelled by US unemployment breaking through the psychologically important four per cent line. But trading in many of the biggest movers on techMARK was thin, with most of the running coming in small packets from the retail market and institutions remaining cautious about the overall trend.
Safeway
Last November, Safeway, the retail food chain, stated that its overriding goal was sustained, profitable sales growth. Six months on, with a radically new and distinctive commercial strategy being implemented and a very different, flexible and increasingly decentralised organisation created, the retail group is driving an unprecedented level of volume growth through its stores. As the already rapid pace of implementation of the new strategy picks up, Safeway's CEO is confident that the group is building the platform for profit recovery in the year ahead.
With promotional lead times now down to a few days and with the deals increasingly tailored to local markets, the food retailer is winning many new clients from competitors. In fact it attracted 750,000 new customers in the last few months, an eight per cent increase. The withdrawal of ABC loyalty card points, which was announced a few weeks ago, is driven by Safeway's desire to increase the focus of its value offer to customers and is one more step towards increasing its competitiveness. The resulting £50 million savings this year will help to fund a massive £80 million step up in this programme (to £110 million in total) but the effectiveness of this investment is increasing daily as cost and margin management improves and as supplier support increases.
Safeway is beginning to deliver outstanding fresh foods of consistently high quality, sold in volume and merchandised in a stimulating and different way. It is already making dramatic improvements in key categories such as produce, bakery, fish, meat and deli, where successful trials are beginning to be rolled out across the chain.
In addition Safeway has taken steps to have best on-shelf availability. Safeway's product availability is expected to continue to improve as it rolls out new initiatives such as the real-time stock file, which substantially improves store stock and order accuracy. With availability on its internal measure now consistently running at between 96 per cent and 97 per cent, Safeway is confident that it is already the most reliable superstore retailer.
In recent months, Safeway has invested more in store staff numbers and hours. Beyond this, people at all levels are being given the skills, resources and authority to deliver truly exceptional service that goes well beyond what is expected by its clients.
On the E-commerce front Safeway plans to capitalise on the opportunities to both lower business costs and better serve its customers which the internet provides. Meanwhile during the year Safeway is reducing the scale of its new store development programme significantly in order to concentrate its resources on its existing stores. More of the capital programme this year is expected to be allocated to the existing store portfolio and total capital spend will fall to under £200 million, compared with just under £300 million in 1999/2000.
While not withdrawing from new store development, or from site acquisition, the retail group is reducing the scale of its programme for the time being and it is putting on hold a number of high quality sites already in the pipeline until it is ready to resume a higher level of new store openings. In the current year, it is expected to open only two stores, at Wimbledon and Woking, with a combined sales area of 51,000 square feet.
Safeway is continuing to build on its strong position in Northern Ireland where, through 12 stores, it now has a 13per cent market share. Operations in Northern Ireland made a small operating loss in the year, and with sales continuing to show double-digit like-for-like growth through a fully refitted and modern store portfolio, it expects to move into profit in the current year.
The Safeway/BP convenience store chain expanded significantly during the year, with 31 new stores opened. With 41 stores now trading successfully, Safeway seems on track with its plan to open 100 joint venture sites. The financial services link with Abbey National also continues to develop. The network of in-store banks has now increased to 29, with a further 15 planned to open in the current year.
Safeway has attracted positive reactions from analysts in particular Morgan Stanley Dean Witter's that set its price target to 260 pence from 250 pence. The broker repeated its "outperform" rating on the stock, while adding that "the jury is still out on the supermarket group's 'fundamental' recovery prospect", but said it will be even more profitable if the recent revival in like-for-like sales proves sustainable.
Please note that the value of investments, and income (if any) yielded by them, may fall as well as rise, and you may not recover the full amount of your original investment. Past performance is not necessarily a guide to the future.
|
