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UK Equities
Next misses out on London equity rally
From the Financial Times of Fri, 19 Dec 2014 19:01:13 GMT

A fourth straight gain for the London market on Friday gave the FTSE 100 its best week since 2011, but Next missed out on the rebound.

Next faded 1 per cent to £64.95 after Jefferies analysts forecast that competition would erode profit margins. Not only have Debenhams and Marks and Spencer been closing the gap on Next for next-day delivery, the rival websites are leading the way in areas such as mobile commerce and personalisation, said Jefferies.

“We believe Next’s online competitive advantages may be diminishing,” said Jefferies. “Next’s operating margins are the highest in the sector and we anticipate they will peak this year at 19.8 per cent before gently declining.”

Debenhams closed up 2.2 per cent to 74p and M&S rose 2.9 per cent to 476p in a rebounding wider market, which lifted the FTSE 100 by 79.27 points or 1.2 per cent, to 6,545.27. For the week, the index was up 3.9 per cent — its biggest weekly gain for three years.

Energy stocks underpinned Friday’s rally, with Tullow Oil up 6.9 per cent to 424.2p and BG Group ahead 2.9 per cent to 901.3p in tandem with crude.

Afren jumped 15.2 per cent to 47.6p after the clearing of a stock overhang helped trigger takeover speculation. SAPetro of Nigeria, Afren’s 7.1 per cent shareholder, has been rumoured to be in the market for a bigger stake as a potential platform to launch a bid.

WPP gained 2 per cent to £13.28 after Citigroup added the advertising agency to its “buy” list. WPP’s forays into automated media buying are risky but potentially very valuable, particularly if the company realises the value with stake sales, Citi said.

Tesco rose 5.5 per cent to 185.4p. While dealers put the strength down to end-of-year sector switching, there was also a retread of long-running gossip that Tesco was lining up retail veteran Archie Norman as its next chairman.

Electricals website AO World underperformed, edging 0.4 per cent lower at 272.6p, after about 6m shares changed hands at just 265p apiece.

Services group Serco dropped 7.7 per cent to 153p after saying it had agreed to delay year-end debt covenant tests until after it completes a rights issue scheduled for the first quarter of next year. For both 2014 and 2015 the delay will cost Serco about £3m in fees and interest, which had not been in consensus forecasts, said Canaccord.

Once adjusted for the planned rights issue, Serco is still trading at 24 times 2016 earnings, Peel Hunt estimated. “This is too high given the many operational uncertainties, the lack of short-term free cash flow generation, the absence of a dividend until 2016 at the earliest and the length of time it is likely to take Serco to deliver a sensible risk-adjusted margin,” said Peel Hunt.

Inmarsat, the communications satellite operator, slipped 1.3 per cent to 786p after Goldman Sachs downgraded from “buy” to “sell”.

Global Xpress, Inmarsat’s $1.6bn fleet upgrade, may not see the demand expected from the maritime customers who provide 50 per cent of group revenue, Goldman said. It also forecast that US defence spending cuts would remain a drag on revenue.

This article is provided by, which is published and distributed by Paolo Cirio Ltd., registered in England, number 8188080. Registered Office: Suite 36, 88-90 Hatton Garden, City of London, EC1 N8PG, United Kingdom. Paolo Cirio Ltd. alone is responsible and liable for information and services provided through Daily Paywall’s newspaper and website.

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