Last updated: March 1, 2010 8:48 pm

Tesco jumps as Buffett raises holding

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Tesco was among the FTSE 100’s top performers on Monday after Warren Buffett raised his stake.

Shares in the supermarket rose 3.2 per cent to 433p, their sharpest gain since May, after Mr Buffett said in a letter to Berkshire Hathaway shareholders that the holding had increased to 3 per cent.

America’s second-richest man has been gradually adding to his Tesco stake since first buying the stock in 2006 when the retailer announced plans to enter the US market. The latest purchase is believed to make him the sixth-biggest shareholder.

Tesco shares were also helped by an upgrade from JPMorgan Cazenove.

The risk of UK deflation looks to have passed and investment spending should fall significantly this year, the broker said. “After two years of no free cashflow generation in the UK, we expect £1bn in 2010/11 and £1.3bn in 2012-13, excluding Tesco Bank,” said analyst Jaime Vazquez.

He moved from “underweight” to “neutral” on Tesco stock, adding: “For the shares to outperform we believe the company would need to outperform its peers again in the UK, improve its capital turnover ratios internationally and prove it can boost free cashflow generation without impacting growth.”

Miners and engineers underpinned the wider market, as a sharp fall for sterling offset weakness among the financials. The FTSE 100 ended higher by 51.42, or 1 per cent, at 5,405.94

Kazakhmys gained 5.2 per cent to £14.10 and ENRC was up 3.8 per cent to £10.66 as metals prices rose on the back of a stronger dollar and potential disruption at copper mines caused by the Chilean earthquake.

Aggreko was a top performer, up 6.1 per cent to £10.34 ahead of full-year results and a strategy update due on Thursday. Investec issued ”buy” advice ahead of the numbers, saying guidance on the group’s International Power Projects business was likely to be positive.

BAE Systems gained 1.3 per cent to 379p even after finance director Bob Murphy sold stock for $843,000.

Financial stocks tumbled as investors looked for sources of funds to back Prudential’s proposed deal to buy the Asian assets of AIG. Legal & General dropped 5.1 per cent to 73¼p and Aviva fell 3.9 per cent to 375¼p. Prudential itself slumped 12 per cent to 530p in anticipation of its £14bn rights issue.

Banks also suffered in the wake of weaker than forecast results from HSBC, down 5.2 per cent to 682p.

Standard Chartered, which posts its 2009 results on Wednesday, lost 2.3 per cent to £15.25½. Lloyds Banking Group was down 4.3 per cent to 50¼p and Royal Bank of Scotland lost 2.6 per cent to 36¾p.

Barclays eased 0.1 per cent to 312p amid concerns about a tough February for its investment banking arm. Deutsche Bank analysts noted a “material slowdown” in issuance last month, with share and bond sales down sharply from second-half average levels.

Sterling’s weakness pressured the retailers, which tend to source stock in dollar-linked currencies. DSG International was the sharpest mid-cap faller, losing 3.5 per cent to 29½p.

But Kingfisher outperformed, up 1.8 per cent to 219p,. Barclays Capital said an experiment to install trade-only counters in B&Q stores looked to be going well and could add up to 10 per cent to UK profits.

Ahead of results on Wednesday, Arriva took on 1.2 per cent to 518p on the back of ”conviction buy” advice from Goldman Sachs. Shares in the transport company are trading close to a 10-year low on sales and earnings multiples despite ”increasing signs that UK unemployment is stabilising,” Goldman said.

ITV, which also reports results on Wednesday, took on 2.2 per cent to 55¼p following a report that its advertising bookings for April were up 18 per cent.

Set-top box maker Pace jumped 8.6 per cent to 190p ahead of results on in Tuesday.

Brewin Dolphin was 2.3 per cent weaker at 121¼p as a single bundle of about 1 per cent of the stock changed hands. Brewin has lost nearly 10 per cent since pension fund pressure group PIRC last month criticised its pay policies.

 

SMALL CAPS Activist lifts Sutton Harbour

 

Sutton Harbour Holdings was in demand on Monday. Shares in the Aim-listed company, which operates a low cost airline, Plymouth City Airport and Sutton Harbour Marine, jumped 12 per cent to 46½p after an activist investor appeared on its share register.

Crystal Amber, which is run by former Schroder Securities analyst Richard Bernstein, said it had amassed an 8.6 per cent holding. Traders think Crystal Amber might have been attracted to Sutton because the £30m company trades at a large discount to net asset value.

Gulf Keystone Petroleum dropped 4 per cent to 78½p amid talk the Kurdish exploration company was set to announce a $15m equity fund raising that would be pitched at a small discount to last night’s closing price.

Tower Resources fell a further 12.7 per cent to 1.2p after the company abandoned the Avivi-1 well in Uganda and said it was considering whether to explore further in Block EA5.

Dominion Petroleum eased 6.8 per cent to 5.1p on news that it had raised £32.7m via an issue of new shares at 5p each. The cash will be used to fund a drilling programme in the Albertine Rift area of Uganda, close to where Tullow Oil has made significant discoveries.

E2v Technologies, which makes electronic components, dropped 15.3 per cent to 39¼p after warning that industrial action at its French facility would hit profits. “Management expect an impact of around £7m on the final’s quarter’s revenues and a significant reduction in profitability – somewhere around 60 per cent of the £7m estimate is a possible impact,” said Seymour Pierce.

Pursuit Dynamics, the fluid technology group, rose 13.1 per cent to 189½p as short sellers scrambled to close positions after Friday’s bullish research report from Mirabaud Securites. The broker thinks Pursuit is a “buy” and has set a 500p target price.

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