Interactive Investor

Shares round-up: Ocado, Aviva and housebuilders boost FTSE 100

2nd February 2022 15:43

Graeme Evans from interactive investor

With the blue-chip index trading near a multi-year high, our City reporter looks at the main drivers to see why.

A return of risk appetite today sent Ocado (LSE:OCDO) shares 7% higher and drew investors back to housebuilders after a City firm said the sector was over 25% too cheap.

The latest outperformance by the FTSE 100 index means the London's top flight is back close to a two-year high at 7,605, with this week's calmer market conditions helping to expose some potential buying opportunities after January's tech-led sell-off.

The biggest blue-chip riser was grocery warehouse technology business Ocado, which jumped 95.5p to 1,526.5p after analysts at Credit Suisse lifted their price target to 1,750p.

Several other broker upgrades benefited high growth stocks today, with Auto Trader (LSE:AUTO) 3% stronger at 699p after Jefferies upped its price target to 870p as it said the classifieds business looked well placed amid the growth of online car retailing.

Gambling firms Entain (LSE:ENT) and Flutter Entertainment (LSE:FLTR) were higher after JP Morgan and UBS improved their respective target prices to 2,590p and 16,350p. Ladbrokes owner Entain rallied 50p to 1,671p and Paddy Power firm Flutter gained 160p to 11,475p.

In the insurance sector, Aviva (LSE:AV.) shares lifted 4.6p to 439.3p as Deutsche Bank's Oliver Steel increased his price target by 6% to 530p. He continues to expect an up-front capital return towards £5 billion when chief executive Amanda Blanc posts full-year results on 2 March.

Steel said: “Even more important will be Aviva's attitude toward future cash deployment, given a highly attractive free cash flow yield. This in turn forms the basis for our continued high conviction buy recommendation, with our new price target still arguably conservative.”

Buyers also returned to the housebuilding sector after a difficult start to the year left stocks 11% lower on average, driven by fears over inflation, the impact of higher interest rates and the threat of a £4 billion bill to resolve cladding and fire safety issues.

Peel Hunt, however, notes recent trading has been strong and said that medium-term fundamentals all point to the continuation of robust profitability across the sector.

It also believes the final cladding bill will end up being lower than the £4 billion forecast and shared across housebuilders, materials companies, consultants and insurance companies.

The broker said: “In our view the sell-off has left the sector looking over 25% too cheap.”

With all the mainstream builders down by at least 10% in the year to last night, Barratt Developments (LSE:BDEV) today rallied 4% or 23.4p to 636.8p, Taylor Wimpey (LSE:TW.) lifted 3.45p to 154.95p and Persimmon (LSE:PSN) improved 53p to 2441p.

More details on the sector's performance will emerge next week when Bellway (LSE:BWY), Barratt, Redrow (LSE:RDW) and Gleeson (LSE:GLE) post updates.

Peel Hunt said: “Data points from the likes of Zoopla and Rightmove have reinforced the view that housing activity remains strong, despite the end of the stamp duty holiday and fears about higher interest rates.”

The broker sees the best value stocks in the sector as being Redrow, Vistry (LSE:VTY) and Bellway.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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