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“Share price gains from the banking and mining sectors help to boost the FTSE 100 by 0.3% to 7,199 on Wednesday, with Lloyds and Glencore both riding high off the back of financial results. “Markets across mainland Europe and Asia also take a step forward. Sterling dips 0.2% against the US dollar and oil prices also fall by the same amount,” says Russ Mould, Investment Director at AJ Bell.
Sainsbury’s
“It was always going to be a tough battle to convince the competition watchdog that merging two of country’s biggest supermarket chains would be a good idea.
“To see such resistance from the CMA at this stage in its review would suggest there is little chance of Sainsbury’s and Asda coming together.
“The language used in the CMA’s announcement implies the merger will be blocked.
“It is very hard to see the deal happening when you look at the list of its concerns including a worse experience for shoppers and a reduction in the range and quality of products.
“Sainsbury’s will no doubt keep fighting, particularly as its own business desperately needs the Asda deal to inject a bit of life into the company.
“One has to wonder whether it is worth bothering with the fight. Management should just give up now and get back to the day job.”
Lloyds
“On most measures 2018 results from Lloyds were slightly short of expectations but like its peer Royal Bank of Scotland the promise of enhanced cash returns to shareholders, including a bumper share buyback, took centre stage.
“Slightly better guidance on cost and impairments means consensus forecasts for 2019 may need to edge up which, in a forward-looking market, makes it easier to dismiss the slight miss in 2018.
“Before the financial crisis intervened Lloyds had a reputation as a solid income stock, and it appears the current management are committed to regaining this mantle. A good job too as capital gains from holding the shares have been thin on the ground.
“And while this is all positive there are clear reasons for not getting carried away. The company’s net interest margin is expected to be flat at best in the year ahead and the company made a further £200m provision for PPI. Like its peers the company will breathe a big sigh of relief when the claims deadline for PPI comes in August.
“Additionally, Lloyds’ domestic focus leaves it particularly sensitive to the eventual outcome from a Brexit process which is still mired in uncertainty.
“If a no-deal outcome were to lead to a slump in the economy then this could result in an increase in bad debts with the business arguably even more exposed following its acquisition of credit card business MBNA in 2017.”
Intu
“What a right mess Intu has got in to. Being exposed to the retail sector is a poisoned chalice for property companies at the moment and Intu is in the thick of it with an estate of shopping centres across the UK and Spain.
“The valuation of its properties is declining which is pushing up its loan-to-value ratio; and shareholders are temporarily being denied a dividend which means it now has a tax liability.
“Real estate investment trusts (REITs) are exempt from corporation tax but are forced to distribute at least 90% of taxable profits as dividends. Intu’s decision not to pay a final dividend for 2018 means it will incur corporate tax payable at 19%.
“The company is trying to sell assets and has received some unsolicited offers for properties in Spain. Selling assets into a weak market shows how desperate it is. Any buyer would have the upper hand in pricing negotiations.
“In time Intu could emerge a leaner business but for now it will have to keep taking the headache tablets and do its best to survive the turmoil.”
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