Proactive Investors - FTSE 100 creeps higher, Tesco (LON:TSCO) up after banking sale.
The FTSE 100 crept higher in early exchanges with Tesco boosted by news it would return cash to shareholders after inking a partial banking sale to Barclays (LON:BARC).
At 8:15am, London’s blue-chip index was up 7.00 points at 7,602.48.
Tesco rose 2.1% after selling the majority of its banking assets to Barclays for around £600 million.
It said it would return the majority of the proceeds to shareholders via an incremental share buyback.
Barclays rose 0.5% although analysts questioned whether it was the best use of cash.
Gary Greenwood at Shore Capital said: “Although given the acquisition looks attractively valued at c.0.6x book in absolute terms, we note that Barclays stock currently trades at c.0.4x book and so investors will no doubt rightly question whether this is the best use of capital, with an enhanced buy back potentially preferable”.
“That said, it will add incremental scale, income and so profitability to Barclays already strong credit card business, which has seen balances shrink in the UK following the pandemic,” he added.
Bellway (LON:BWY) shares were little moved by its trading statement while BAE Systems (LON:BAES) climbed after the pricing of the Air Astana IPO in which it holds a large stake.
Air Astana set for Valentines debut after oversubscribed IPO
Air Astana has priced its IPO at $9.50 per share giving the airline a valuation of $847 million ahead of its listing on February 14.
The airline, in which BAE Systems holds a large stake, said the IPO was oversubscribed "multiple times".
BAE will sell 7.5 million GDRs in the domestic offering and 14.2 million in the global offering.
The IPO will raise $370 million, including an over-allotment option offered by BAE.
Air Astana will dual list in London and Kazakhstan, with the London Stock Exchange hosting global depository receipts, which represent one share.
The firm had been targeting a range of between $770 million and $962 million dollars in its flotation.
Bellway sees pick in enquiries as mortgage rates tick down
We've also had an update from Bellway which unsurprisingly reflects the tough conditions in the housing market.
The housebuilder said housing revenue tumbled to £1.25 billion in nthe six months to January compared to £1.80 billion the year prior, although the figure was in line with the board's expectations.
Total housing completions of fell to 4,092 homes from 5,695 last year at an average selling price of £309,300 (2023 - £316,929).
But there were signs of encouragement as the reduction in mortgage interest rates throughout the first half led to encouraging levels of customer enquiries in the traditionally quieter winter trading period.
The private reservation rate also ticked up during January to 0.59 per outlet per week (January 2023 - 0.45).
Bellway expects full-year completions of around 7,500, down from 10,945 last time, supported by a forward order book at January 31 of 3,970 homes with a value of £1.01 billion.
Tesco and Barclays strike banking partnership
Tesco PLC has sold the majority of its banking operations to Barclays PLC for around £600 million after striking a long-term strategic partnership.
The UK’s biggest food retailer said the majority of the proceeds would be returned to shareholders in the form of an incremental share buyback.
Combined with the previously announced special dividend of £250 million paid by Tesco Bank in August 2023, this is expected to result in total cash received by Tesco of around £1 billion, Tesco said.
Chief Executive Ken Murphy said: “The transaction will also significantly reduce our financial liabilities, in turn strengthening our balance sheet and allowing us to focus on continuing to grow our core retail business.”
As part of the initial 10-year partnership, Tesco has sold its credit cards, loans and savings operations to Barclays, removing £7.7 billion of capital-intensive assets and £6.7 billion of financial liabilities from its balance sheet.
Tesco said it would retain all other existing activities of Tesco Bank, including insurance, ATMs, travel money and gift cards.
It said these are capital-light, profitable businesses with a strong connection to its core retail offer.
Tesco said the incremental share buyback, plus combined effect of the sale of the banking operations and formation of the partnership is expected to be mildly accretive to earnings per share.
Barclays said the transaction will not materially impact planned financial returns or distributions.
The lender said it would be financed from existing resources, and is expected to reduce Barclays' CET1 ratio by around 0.3% upon completion.
Around 2,800 Tesco staff will transfer to Barclays with the deal set to complete in the second half of 2024.
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