Tesco shares ticked higher on Friday after the supermarket announced it would dispose of its banking arm as part of a strategic partnership with Barclays.

Supermarkets have faced calls from shareholders to streamline their businesses and focus on core operations.

Tesco will sell its banking arm to Barclays in a deal worth up to £700m and will receive annual income from Barclays for the use of the Tesco brand.

Tesco said it plans to use the proceeds of the sale to launch a share buyback programme.

Tesco shares were 1% higher at the time of writing.

“Tesco shareholders are in-line for an incremental share buyback after selling the bulk of its banking operations to Barclays for around £600m,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

“Tesco is streamlining the balance sheet, having parted ways with its credit cards, loans and savings operations. Doubling down on the core food business is a trend we’re seeing many of the grocers adopt, as they reduce exposure to non-core activities and get ready to win the price wars, which have been raging since cost of living pressures soared. The move makes a great deal of sense, and adds weight behind one of Tesco’s main attractions – its ability to return cash to shareholders.”

Helium One Global was the most traded share by Hargreaves Lansdown last week.

The company has rocketed higher after announcing potential commercially viable helium encounters in their Tanzanian drilling operations.

HE1 is one of the best-performing shares of 2024, up 866% as of Wednesday’s closing price of 2.42p. 

The promise of further progress in Tanzania meant 5.43% of buy trades by HL clients last week were in HE1 shares. Helium One also accounted for 3.3% of sell trades.

More buy trades were placed by Hargreaves Lansdown clients in HE1 last week than Tesla and NVIDIA combined.

Yesterday, the company rallied after announcing a funding round to further develop its Rukwa project.

“The results that we have achieved from the Itumbula West-1 well, flowing helium to surface in such significant concentrations, has confirmed a globally unique helium producing provin,” said Lorna Blaisse, Chief Executive Officer.

Helium is used in a wide range of industrial, military and medical applications.

The FTSE 100 was alive with strategic reviews and M&A on Wednesday as Sainsbury’s and Barratt Developments unveiled bold new measures to enhance future shareholder returns.

Unfortunately for current shareholders, the measures were not taken well by the market, and in the absence of any major economic developments, the two companies dragged London’s leading index lower.

The FTSE 100 was down 0.4% at the time of writing on Wednesday.

Interest rate concerns and Chinese stock market intervention took a back seat on Wednesday with equity investors focused on two material announcements by Sainsbury’s and Barratt Developments.

Operating in a highly competitive market, Sainsbury’s has announced a growth strategy that targets higher grocery and Argos sales by investing in technology and their Nectar card scheme.

Sainsbury’s shares fell 3.8%, with investors choosing to focus on the cost of achieving their goals rather than the end result.

“Sainsbury’s has unveiled bold plans to make the company bigger in the future. There is a clear vision to get customers to spend more money, attract more people to its stores, and drive more traffic to Argos’ website, stores and supermarket concessions. At the same time, Sainsbury’s wants to be a more efficient business and have staff and customers rate it more highly.

“However, its growth plan is not something that is guaranteed to work its magic. It’s not hard to dream up such a wish list to improve the company’s fortunes as it is basic business sense. Achieving the goal is another matter and it will cost money – something the market typically hates. Sainsbury’s shares fell on the news, but interestingly so did Tesco and Marks & Spencer as they face new competitive threats,” said Russ Mould, investment director at AJ Bell.

Sainsbury’s update weighed on the FTSE 100’s retailers with Tesco and Marks & Spencer falling, but also JD Sports and B&M.

Barratt Developments

Barratt Developments announced the creation of a major new force in UK housebuilding on Wednesday with the all-share offer for Redrow. The new group’s revenue will be in the region of £7.5bn, making it a significant player in the housebuilding industry.

Both Barratt Developments and Redrow released half-year results alongside the merger news pointing to a sharp slowdown in completions and revenue for the pair.

“The economic winds have not been kind to the housebuilders and Barratt Developments and Redrow clearly believe they’ll be stronger together, giving the new combined company much bigger clout to capitalise on the structural need for housing in the UK,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“Redrow’s board of directors intend to unanimously recommend that shareholders vote in favour of the £2.52 billion deal, which would give them 32.8% of the combined group, with Barratt shareholders holding 67.2%. The new group will be renamed as Barratt Redrow, and the move is expected to produce around £90 million in savings in operating costs of the two companies annually by the end of the third year.”

Taylor Wimpey investors were unphased by the news, and the stock rose 0.9%. Persimmon dipped 0.3%.

Barratt and Redrow have agreed to an all-share merger, with Barratt acquiring Redrow to form a new UK housebuilding powerhouse.

Barratt Developments shares were down 7% at the time of writing while Redrow shares surged 13%.

Under the terms of the merger, Redrow shareholders will receive 1.44 new Barratt shares for each Redrow share they own. This values Redrow at approximately £2.5 billion based on recent share prices, a 27% premium to Redrow’s share price on 6th February.

Post-merger, Redrow shareholders will own about 32.8% of the combined company, with Barratt shareholders owning 67.2%.

“The move is a seismic shift for the sector, reflecting not only the challenges which housebuilders have more recently faced in terms of the economic backdrop, but also a move to shore up the capabilities of two major players, with the new ‘Barratt Redrow’ company having aggregate revenues of GBP7.45 billion,” said interactive investor’s Richard Hunter.

The boards believe the merger will create an ‘exceptional UK homebuilder’ with complementary brands and geographic footprints to accelerate housing delivery.

Barratt estimates pre-tax cost synergies of at least £90 million by the end of year 3 post-merger, achieved through procurement savings and streamlining of functions. One-off costs to achieve these savings are estimated at £73 million. The merger is expected to be accretive to adjusted EPS in the first year after completion.

The deal was released alongside Redrow and Barratt Developments half-year results, both of which showed a sharp slowdown in completions and revenue during the period.

In many respects, 2023 is a year to forget for Smurfit Kappa. The group’s shares were in a classic downtrend through the last year with a series of lower highs as revenue and demand fell, culminating in full-year EBITDA and revenue falling 12%.

Full-year results released on Wednesday showed operating profit fell 16% to €1,403m and profit before tax sank 18% to €1,055m as the packaging company grappled with falling demand for packaging.

Smurfit Kappa’s fortunes are inextricably linked with consumer demand and slowing retail sales across major economies fed directly into their earnings.

However, there were some signs of positivity and Smurfit Kappa shares rose 4.5% on Wednesday.

Margins improved in the full year, and the company said it had returned to growth in the fourth quarter.

“The demand environment for the industry in 2023 was difficult primarily due to destocking and a lack of economic activity in certain sectors, particularly durable goods,” said Tony Smurfit, Group CEO.

“However, one trend in which we have seen strong acceleration, is an increasing demand for sustainable packaging solutions. While full year volumes for the Group were down 3.5%, we saw a progressive improvement in demand during the year, with a return to growth in the fourth quarter.”

Investors will be pleased that despite soggy full-year results, the company pushed ahead with a dividend increase.

“Whilst they will never compete for the most exciting sector award, packaging firm Smurfit Kappa rounded off a challenging year with a return to growth in Q4 while bumping up their final dividend by 10%. It was about time shareholders got some good news after the lukewarm reception to their acquisition of US counterpart WestRock. WestRock posted some lacklustre numbers last week, missing forecasts,” said Adam Vettese, analyst at eToro.

“Europe’s largest packaging manufacturer now faces the challenge of sustaining the increased demand to make up the overall shortfall in volumes experienced last year. If durable goods demand returns and customers increase their stock levels, then Smurift Kappa shares could kick on in 2024.”