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UK Equities
Home Retail jumps to 7-month high
From the Financial Times of Mon, 22 Dec 2014 18:54:28 GMT

Home Retail Group was among the gainers on Monday as the FTSE 100’s rally extended into a fifth straight day.

RBC turned positive on Home Retail, helping push the stock to a seven-month high.

The Argos and Homebase owner has benefited from improved demand for consumer electronics but not from later-cycle products such as furniture and homewares, which provide 20 per cent of sales at higher profit margins, RBC said.

“Argos is well positioned both in terms of its product offer but also given an improved UK consumer outlook (lower oil prices and favourable stamp duty changes),” said RBC.

“We estimate Home Retail’s free cash flow yield will improve materially from [fiscal year] 2017 following the end of its current investment programme, which could provide scope for incremental shareholder returns.”

Home Retail closed 5.3 per cent higher at 201.8p. The retailer had started last year as London’s most shorted large-cap stock with nearly a quarter of its free float on loan.

Short interest was then squeezed close to zero as the shares subsequently rose 60 per cent, Markit data show.

Seasonally low volumes exaggerated volatility in the wider market, pulling the FTSE 100 up 31.47 points, or 0.5 per cent, to 6,576.74.

Blue-chip turnover, down a third on the recent daily average, was its lowest since the US Labor Day holiday in September.

News of Kingfisher’s long-awaited retreat from China pushed the shares 1.8 per cent higher to 330.1p, with the group agreeing to sell a 70 per cent stake in its lossmaking Chinese division to Wumei for £140m cash.

Analysts said the income would help compensate for increased tax costs in France, which last week raised a levy on big-store operators by 50 per cent.

Pets at Home lost 6 per cent to 199.1p, which reversed a spike higher in Friday’s untidy closing auction.

Afren climbed 3.8 per cent to 49.4p after confirming a merger approach, rumours of which had helped the stock rally 38 per cent over the previous week.

The Nigeria-focused explorer said it had received a “highly preliminary approach” from peer Seplat Petroleum, which rose 23.5 per cent to 126.3p.

Dealers were keen to speculate on a counterbid for Afren, although there were uncertainties about how any change of control might affect its $860m of high-yield bonds and its preferential tax status in Nigeria.

“The oil price slump and the weakening of the debt markets could limit the number of alternatives bidders,” said RBC. “However, cash-rich oil traders have previously shown an interest in Nigerian oil production; Middle East-based firms that see some value in the Iraqi assets may express an interest; and Nigerian companies that are keen to grow may also take a look,” it said.

Market Tech, the owner of Camden Markets in London and a discount fashion website, rose to 225p on its Aim debut following a placing at 200p apiece.

The share sale valued Market Tech at £750m, making it the year’s biggest Aim flotation so far.

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