Wm Morrison held steady in a falling London market amid speculation about a cash return to shareholders.
“Morrison is overcapitalised by at least £1bn,” analysts at UBS said. “Preliminary results on March 10 provide scope for a substantial capital return and/or another hike in the dividend.”
A £1bn cash return by the supermarket would boost earnings per share by 9 per cent without damaging the business, Mike Tattersall, an analyst, said.
The shares already reflect “anaemic growth prospects” and a capital return “should reduce the group cost of capital rather than heighten the risk profile”, he said.
On trading, UBS said 2011 would be tough for Morrison given cost inflation and a hiatus in adding floor space. But with tentative evidence the group was rebuilding its property pipeline, investors should not write it off as ex-growth, it argued.
In an overnight note, UBS added Morrison to its “buy” list with a 315p target price. The stock closed at 271¼p, up 0.1 per cent.
Royal Dutch Shell led the wider market lower after its full-year earnings missed expectations, sending its B shares down 3.3 per cent to £21.77.
Shell accounted for all of the FTSE 100’s decline, with the index finishing 16.73 points, or 0.3 per cent, lower, at 5,983.34.
Tui Travel fell 1.6 per cent to 243p after warning cancellations to Egypt and Tunisia would cost £25m- £30m in the second quarter, ending March.
The guidance, which equates to about 2 per cent of 2011 group revenues, overshadowed annual results that were broadly as expected.
Sage fell 2.6 per cent to 292¾p on profit-taking after its first analyst day under new management failed to set out growth targets.
The software company also played down talk it may sell its US healthcare records business. Numis cut Sage to “neutral” on valuation grounds.
Lloyds Banking Group was weakest among the financial stocks after Santander said its UK net interest margin fell for a second consecutive quarter.
Morgan Stanley said the news “gives pause for thought on the pace of margin recovery at Lloyds”, which closed down 2.1 per cent to 63p.
Aggreko, the generator supplier, rose 4.9 per cent to £14.97 after Merrill Lynch added the stock to its “buy” list with a £19 target.
Recent underperformance gives investors an opportunity to benefit from acute power shortages in emerging markets, Merrill said.
The broker also argued Aggreko had the balance sheet strength to return between 80p and 160p to shareholders.
Engineer Smiths Group edged up 0.3 per cent to £13.31, having been weak on Wednesday amid talk management had made cautious comments on its detection division.
Forecast-beating results from BT Group lifted its shares by 3.6 per cent to 185p. InterContinental Hotels rose 2.9 per cent to £13.43 on the back of strong results from US peer Starwood Hotels.
IAG, the merged BA and Iberia, rose 0.4 per cent to 260p on maiden monthly passenger figures showing premium traffic up 7.4 per cent in January.
GlaxoSmithKline was up 3.6 per cent to £11.68 after it resumed a share buy-back programme, which had been suspended in 2009 in anticipation of acquisitions that never came.
The news countered GSK’s quarterly earnings, which were slightly weaker than expected, and uninspiring forward guidance.
Equipment hire group Ashtead led the mid-cap risers, up 4.5 per cent to 185p after US rival United Rentals guided to expect rental rates to increase by 5 per cent this year.
F&C Asset Management gained 4.5 per cent to 185p after shareholders voted to replace its chairman with Edward Bramson, the activist investor.
Traders suggested the move may have been driven by short covering among investors who were anticipating that, if the vote had gone the other way, Mr Bramson would have sold a 17 per cent stake in F&C.
Hansen Transmission, the wind turbine gearbox maker, dropped 5.3 per cent to 53½p after UBS downgraded to “sell”. Hansen’s core business was declining while growth is coming from its industrial gearbox division, which has been sold, UBS said. It also argued demand remained weak in Europe, making Hansen’s outlook on 2012 “challenging”.