M&S helps FTSE edge up as it bucks Christmas gloom in food retail

Thu Jan 9, 2014 6:36am EST

* FTSE 100 up 0.3 pct

* M&S boosted by food sales growth

* Bucks falls for WM Morrison and Tesco

* William Hill hit by threat of government regulation

By Francesco Canepa

LONDON, Jan 9 (Reuters) - Marks & Spencer helped Britain's FTSE 100 trade with small gains on Thursday as a positive performance at its foods business lifted the stock, bucking a string of gloomy Christmas updates in the retail sector.

Shares in M&S rose 2.5 percent after the upmarket retailer reported organic growth in food sales in the Christmas quarter, offsetting a weak show for its clothes business, which reported a 10th consecutive quarter of falling sales.

The stock, which is still down 12 percent from a five-year high hit in September, outperformed steep share price falls at larger food retailers WM Morrison and Tesco, which reported like-for-like quarterly sales drops on Thursday.

"The trend in the food market is being very much towards the top-end and value-end outperforming the big four, and certainly the results over Christmas have confirmed that trend is continuing," said Investec analyst Kate Calvert, upgrading M&S to "buy" from "hold".

"With Marks & Spencer, there is a lot of bad news already in the share price and given that there are fundamental changes going on in the business model, which we will start to see over the next couple of years, I don't think that's factored into the valuation."

M&S was among top gainers on the FTSE 100, which was up 22.48 points, or 0.3 percent, to 6,744.26 points at 1051 GMT.

The energy sector also provided support for the index as the oil price firmed, with Tullow Oil among top gainers after an upgrade by HSBC.

Rivalling the retailers among top fallers was William Hill , down 7 percent. It was downgraded to equal weight from overweight by Barclays after Britain's parliament debated fixed odds betting terminals and did not rule out restricting them.

"Regulatory change has always been the key driver of sentiment toward the gambling sector. Yesterday the Labour Party called for greater regulation of the gambling industry in the UK," analysts at Barclays said in a note.

"We stress that there has been no change to regulation but we expect that this negative news-flow will weigh on the sector ... In the absence of clarity, we downgrade William Hill."

Mid-cap Ladbrokes fell 4.7 percent, with Barclays cutting its rating on the stock to "underweight".

"For the bookmakers, any mention of regulation is going to be a big concern for investors, and as the market is weaker today, the move is getting exaggerated," Will Hedden, sales trader at IG, said.

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