By Steve Goldstein
Investors had a mixed response to news that both Morrison Supermarkets and J Sainsbury would give back tax relief from the U.K. government.
Morrisons /zigman2/quotes/205533138/delayed UK:MRW +1.76% late on Wednesday said it will repay £274 million, and Sainsbury /zigman2/quotes/206038250/delayed UK:SBRY +3.05% on Thursday said it will repay £410 million. Morrisons’ shares were flat while Sainsbury rose 4%.
Both supermarket operators were following the lead of Tesco /zigman2/quotes/203761082/delayed UK:TSCO +2.14% , which on Wednesday had announced it would repay £585 million.
Including the decisions by Asda and Aldi UK, the U.K. supermarkets have given up more than £1.7 billion ($2.3 billion) in tax relief, according to Sky News.
UBS said Sainsbury’s guidance that it expects underlying pretax earnings of at least £270 million implies a stronger-than-forecast £680 million excluding the rates relief, which is about £40 million stronger than consensus expectations. Sainsbury also said it would give priority to payments of dividends over net debt reduction, while Morrisons declared a special dividend.
Analysts at JPMorgan Cazenove downgraded Morrison to underweight from neutral and cut its price target to 160 pence from 175 pence. “We see momentum slowing down combined with little further self-help,” the broker said. They found it “worrying” that Morrison’s earnings before interest and tax was almost flat excluding business rates relief and COVID-19 costs.
The broader FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX -0.31% edged up 0.3% in afternoon trade.
Flutter Entertainment /zigman2/quotes/208882914/delayed UK:FLTR -3.34% shot up 11% on its plan to buy a 37% stake in FanDuel for $4.2 billion, which it said implied a 40% discount to the valuation on rival U.S. sports-betting group DraftKings /zigman2/quotes/213120645/composite DKNG -3.86% .
Defensive-oriented stocks struggled, with pharmaceutical companies AstraZeneca /zigman2/quotes/203048482/delayed UK:AZN +0.01% and GlaxoSmithKline /zigman2/quotes/200381158/delayed UK:GSK +1.54% and consumer goods company Unilever /zigman2/quotes/205449809/delayed UK:ULVR +0.96% all lower. UBS downgraded GlaxoSmithKline to neutral, while AstraZeneca’s COVID-19 vaccine is unlikely to get emergency U.S. approval before late January, according to the head of U.S. government’s Operation Warp Speed.