LONDON MARKET OPEN: Home Retail Gains After Homebase Sale

Mon, 18th Jan 2016 08:36

LONDON (Alliance News) - London's main stock indices opened higher Monday morning, despite oil prices setting new lows after the West lifted sanctions targeting Iran over the weekend, with shares in Home Retail Group rising after it agreed to sell Homebase to Australia's Wesfarmers and said it plans to return most of the cash to shareholders.

The FTSE 100 index was up 0.6% at 5,838.98 points. The mid-cap FTSE 250 was up 0.3% at 16,201.60, but the AIM All-Share was down 0.2% at 697.01. In Europe, the French CAC 40 was up 0.6%, while the German DAX 30 was up 0.7%.

Home Retail shares rose 3.3%. The company will sell DIY and garden centre chain Homebase to Wesfarmers for GBP340.0 million, having disclosed it was holding advanced talks with the buyer last week.

Wesfarmers owns Australian DIY chain Bunnings and intends to rebrand Homebase stores under that name, with an investment of GBP500.0 million to be made in the business over the next three to five years. Wesfarmers said in an earlier statement it expects the deal to complete in the first quarter of 2016.

Home Retail confirmed that calendar on Monday morning and said it would return about GBP200.0 million of the proceeds to shareholders, after deducting GBP50 million in pension contributions and GBP75 million in deal and restructuring costs.

Meanwhile, shares in Cobham were down 1.8%, while those of Wolseley were up 0.9%. Wolseley, a building materials company, said its chief executive will step down in August and will be replaced by its chief financial officer. Ian Meakins will retire on August 31, having been at the helm since July 2009. He will be replaced by John Martin, the current chief financial officer who has been in that role since 2010.

In addition, Wolseley said Simon Nicholls will replace Martin as chief financial officer. Nicholls joins from the same role at Cobham, the FTSE 250-listed defence and aerospace group. Cobham said the search to replace Nicholls is underway and an announcement will made in due course.

Oil prices set new lows overnight after the West dropped its economic sanctions against Iran over the weekend, allowing the country to export oil freely and settling the dispute over the regional power's nuclear programme.

EU chief diplomat Federica Mogherini and US Secretary of State John Kerry made the announcements in Vienna after the International Atomic Energy Agency confirmed that Iran had kept its side of last year's agreement with six major powers by significantly scaling down its nuclear programme. The IAEA confirmed that Iran had dismantled thousands of uranium enrichment centrifuges, shipped most of its enriched uranium to Russia and poured concrete into its plutonium-producing Arak reactor, Kerry said.

The end of Western sanctions also means that Iran regains access to more than USD100 billion of oil revenue that had been frozen in foreign accounts, and its ageing national airliner fleet can be modernized.

Brent oil was quoted at USD28.56 a barrel shortly after the London open, having touched a new low at USD27.69 a barrel overnight. Similarly, West Texas Intermediate touched a low of USD28.35 a barrel, standing at USD29.00 a barrel after the open.

This weighed on oil-related stocks shortly after the London open, with BG Group down 0.5%, BP down 0.3% and Royal Dutch Shell 'A' down 0.3%. Meanwhile, shares in air carriers were benefiting from low oil prices, with International Consolidated Airlines Group up 1.1%, easyJet up 1.0% and Ryanair Holdings up 0.9%, while cruise operator Carnival was adding 0.8%.

"Today's monthly report from OPEC of demand and supply conditions in the oil market will provide an update on whether the situation of excess supply that is bearing down on the oil price is showing any sign of easing," said Lloyds Bank.

The Organization of the Petroleum Exporting Oil Countries will release its monthly oil market report later Monday, according to the organization's website.

In Asia on Monday, the Chinese Shanghai Composite ended up 0.4% supported by a decision by China's central bank, which added one more step to contain the downward pressure on yuan and manage cross-border fund flows.

The People's Bank of China is set to raise the reserve requirement ratio on yuan deposits of offshore banks, effective January 25. The measure is expected to limit liquidity in the currency. The ratio will be lifted from its current zero to "normal levels", the PBoC said.

Separately, data from the National Bureau of Statistics showed home prices in majority of the Chinese cities grew in December. Month-on-month, house prices rose 39 cities out of 70 surveyed by the government. It dropped in 27 cities and remained flat in four cities.

The Hang Seng index in Hong Kong closed down 1.2%, and the Japanese Nikkei 225 index down 1.1%.

Japan's industrial production dropped slightly less than estimated in November, final data from the Ministry of Economy, Trade and Industry showed. Industrial production slid 0.9% month-on-month from October instead of 1.0% decrease initially estimated.

Wall Street ended lower Friday, before heading into a three-day weekend, with US markets closed Monday for Martin Luther King's Birthday. The DJIA closed down 2.4%, the S&P 500 ended down 2.2% and the Nasdaq Composite down 2.7%.

Still in the UK corporate calendar, UK-listed miner Rio Tinto is expected to release its fourth-quarter operations review after the London market close, at 2130 GMT.

By Daniel Ruiz; danielruiz@alliancenews.com