FTSE springs into life, Sainsbury’s M&A raises questions about rivals and suppliers, and WPP on life after Sorrell

The FTSE 100 springs into life on Monday with a 0.3% rise to 7,526, driven by a strong showing from financial stocks, Sainsbury’s M&A move and advertising giant WPP bouncing back,” says Russ Mould, investment director at AJ Bell.

Sainsbury’s

“The proposed tie-up between Sainsbury’s and Asda raises a lot of questions regarding how the competitor and supplier landscape may change.

“Morrisons may want to do something to protect its position such as seek a merger or a deal of some kind with the Co-Op.

“Although this will not make a huge dent into the market share gap between Morrisons and Tesco and the proposed Sainsbury-Asda entity, such a move would at least take Morrisons’ market share back above the combined reach of the discounters Aldi and Lidl, who continue to act as a disruptive force in the UK grocery market.

“Suppliers to Sainsbury’s and Asda face the prospect of potentially having to sell their goods at a lower price. A central part of the corporate tie-up between the supermarket companies is combined buying power strength. That is bad news for small suppliers who could be squeezed out of the market.

“Even the bigger suppliers could see their profit margins compressed if the enlarged supermarket demands better terms. That is illustrated by negative share price movements today from food suppliers Bakkavor, Cranswick and Greencore, all of whom sell their products to one or both of Sainsbury’s and Asda.”

WPP

“The reaction to today’s first quarter update from WPP suggests the departure of Martin Sorrell may be helping sentiment towards the advertising giant.

“Without getting into the ins and outs of his exit the issue of his succession was one the company was going to have to confront sooner rather than later and now this lingering uncertainty has been addressed.

“The numbers themselves are mixed but a 0.1% decline in like-for-like net sales is better than the 1% decline pencilled in by analysts and shareholders will have been further reassured by the in-line guidance for the full year.

“There was very little detail on future strategic plans for the business under newly installed joint chief operating officers Mark Read and Andrew Scott. This may have to wait until the company posts its first half results in August.”