Bloomberg News

U.K. Stocks Climb Amid China Optimism as Tesco Advances

December 05, 2012

U.K. stocks rallied to a six-week high, led by mining companies, on speculation China will increase stimulus to support growth in the world’s second- largest economy.

Vedanta Resources Plc (VED) and Rio Tinto Group both gained more than 2.5 percent as copper rose. Tesco Plc (TSCO) added 3.3 percent, its biggest advance in two months, after announcing a review of its Fresh & Easy unit in the U.S. Sage Group Plc (SGE) fell 3.5 percent after its revenue and dividend missed forecasts.

The FTSE 100 Index (UKX) advanced 23.04 points, or 0.4 percent, to 5,892.08 at the close in London, its highest level since Oct. 19. The equity benchmark slipped less than 0.1 percent yesterday as U.S. lawmakers continued to debate a new budget. The broader FTSE All-Share Index also rose 0.4 percent today, while Ireland’s ISEQ Index gained 0.5 percent.

“It does seem to be all about China today,” said Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers Ltd. in London. “There were nerves about the change of leadership, so from what we’ve heard, they do appear to be supportive as far as the economy is concerned.”

Stocks rallied in Asia after China abolished a rule limiting insurance companies’ investments in commercial banks and the government pledged to promote urbanization.

The Communist Party’s Politburo said in its first assessment of the economy under new leader Xi Jinping yesterday that the government will keep macroeconomic policies stable, making adjustments as needed to deal with difficulties.

Growth Forecasts

In the U.K., Chancellor of the Exchequer George Osborne said the economy will contract this year and the budget deficit will take longer to bring under control than he had planned.

Forecasts from the independent Office for Budget Responsibility showed the economy will shrink 0.1 percent in 2012 instead of the 0.8 percent growth predicted in March, and expand 1.2 percent next year instead of 2 percent, Osborne said in his autumn statement to Parliament today.

A gauge of mining companies climbed 1.8 percent as copper rose as much as 0.5 percent on the London Metal Exchange. Vedanta advanced 2.6 percent to 1,094 pence, Rio Tinto, the world’s second-largest mining company, increased 3.1 percent to 3,226 pence and larger rival BHP Billiton Ltd. (BHP) rose 2.4 percent to 1,998 pence.

Tesco jumped 3.3 percent to 337.5 pence after saying it will probably leave the U.S. after announcing a review of its Fresh & Easy unit and the departure of the head of the unprofitable business.

The U.K.’s largest retailer will consider all options for the U.S. chain. Tesco said it has received approaches for all and part of the Fresh & Easy business over the last few months. The company has hired investment bank Greenhill & Co. to assist with the review.

Home Retail

Home Retail Group Plc (HOME) rallied 6.8 percent to 121 pence after Bank of America Corp. raised its recommendation for the retailer to buy from neutral, saying its Argos catalog chain has become more competitive with online rivals.

Stagecoach Group Plc (SGC) climbed 5.9 percent to 308.7 pence after the company reported first-half pretax profit of 124 million pounds ($200 million), beating the average analyst estimate of 114 million pounds. Adjusted earnings per share of 16.8 pence also exceeded estimates.

Sportingbet Plc (SBT) advanced 4.2 percent to 49.5 pence, extending yesterday’s 8 percent rally. The online-gambling company will recommend William Hill Plc and GVC Holdings Plc’s offer of 56.1 pence a share for the company. They have until Dec. 18 to make a firm bid, subject to due diligence.

Thomas Cook

Thomas Cook Group Plc (TCG) surged 9.3 percent to 29.5 pence as Credit Suisse Group AG initiated coverage of the company with an overweight recommendation, meaning investors should buy the shares. The company is one of the 10 most shorted stocks on the FTSE All-Share with 8.5 percent of shares outstanding, according to Markit.

Sage fell 3.5 percent to 300.4 pence, the biggest decline on the FTSE 100. The U.K.’s biggest software maker reported underlying full-year revenue of 1.3 billion pounds. That missed the average analyst estimate of 1.35 billion pounds, according to data compiled by Bloomberg. The company proposed a final dividend of 6.67 pence per share, which also missed estimates.

Tullow Oil Plc (TLW) declined 2.9 percent to 1,254 pence, falling for a third day. Tullow Oil Vice President of African business Tim O’Hanlon said at a conference in Rwanda today that oil output from Uganda will be delayed.

Separately, Africa Oil Corp. Chief Executive Officer Keith Hill said combined costs will increase in the companies’ Kenyan operations next year to “half a billion dollars,” from “a couple million” in 2012.

The volume of shares changing hands on FTSE 100 companies was 8.3 percent lower than the 30-day average, according to data compiled by Bloomberg.

To contact the reporters on this story: Sarah Jones in London at sjones35@bloomberg.net; Sofia Horta e Costa in London at shortaecosta@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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