Market Report: Morrisons' cheap petrol offer fuels City criticism

Drivers may flock to the pumps to take full advantage of Morrisons' latest campaign, but the City was not so impressed. The grocer finished deep in the red last night after the news that it is offering a major fuel discount prompted revived fears over the effects of the supermarkets' battle for customers.

As Morrisons kicked off its "Fuel Britannia" deal yesterday, offering 15p off a litre of petrol or diesel to those who spend over £60 in store, Oriel Securities warned it would result in "significant losses on fuel sales, which will erode any incremental profits made in-store".

Claiming such campaigns "have a short-term impact", the broker's scribblers argued that – given the grocer's new financial year has only just started – dipping into its "marketing budget so aggressively so soon may well be a bad sign".

They were downcast on the sector as a whole, saying that it was "not a place that investors should have significant money at the moment".

The supermarkets have been battling to take market share from each other with a number of price-cutting initiatives, and the analysts warned that they "will come under pressure when the extent to which [they] will go to drive footfall becomes clear".

Morrisons ended up being knocked back 8.8p to 286.5p, continuing a rough few days for the group.

Earlier in the week Goldman Sachs' analysts decided to place Morrisons on their "conviction sell" list after it said industry data showed a "significant deterioration in trading momentum".

Overall, the FTSE 100 finished ahead for the first time in three sessions, climbing 21.34 points to 5,937.89, on a busy day for results.

Royal Bank of Scotland's (RBS) full-year figures were the main draw and despite its annual losses almost doubling, it managed to recover from an early fall and close 1.39p better off at 28.72p.

Lloyds, which releases its figures today, advanced 1.16p to 36.58p.

RBS's announcement that it plans to IPO its insurance business during the second-half of this year gave the insurers a boost generally, with Old Mutual and Prudential powering up 3.3p to 160.1p and 11.5p to 723p respectively.

However, RSA Insurance slumped 5.5p to 107p after the Square Mile scoffed at a disappointing rise in its dividend.

Another strong day for oil meant that International Airlines Group slipped for the third straight session. The British Airways-owner was pegged back 2.6p to 162.6p as cruise giant Carnival – which is also sensitive to the price of fuel – shifted down 6p to 1,897p.

Elsewhere, precious metals miner Fresnillo ended up in pole position, jumping 108p higher to 1,885p following a spike in the price of silver.

The engineers enjoyed a fantastic day on the FTSE 250, with Bodycote coming out the clear winner. It surged 15.52 per cent to 389.3p after posting a massive jump in its full-year profits, while Cookson ticked up 30p to 670p on the news it had agreed a deal to get rid of its precious metals unit.

Bid talk helped Fenner climb 14.7p to 481.8p after Panmure Gordon's Oliver Wynne-James said he believed the conveyor belt maker was starting "to look appealing to the larger players in an increasingly-consolidated space".

The analyst added that the battle between Weir Group (up 24p to 2,178p) and FLSmidth to buy Ludowici showed that the "heat is beginning to be turned up" around the mining equipment manufacturers, claiming the Australian group has "parallel expertise" to Fenner.

Takeover chatter was failing to help Aegis, however, despite UBS saying there was "a possibility [the group] is a consolidation candidate".

The broker added that there were potential synergies with peers Omnicom, Publicis and Dentsu, yet the advertising agency still edged back 2.6p to 170.9p.

Down on AIM, Tower Resources shed nearly 24 per cent after the explorer announced it was plugging and abandoning its Mvule-1 exploration well in Uganda.

The explorer had been one of those suggested as a possible takeover target following the news earlier in the week that Cove Energy (up 0.75p to 194.75p) had agreed to be bought by Royal Dutch Shell (up 19.5p to 2,365p) for 195p-a-share, but last night it closed 0.82p worse off at 2.65p.

A rollercoaster session for Gulf Keystone Petroleum ended with it a mere 1p to 366p better off after fellow Kurdistan-explorer Genel (down 0.5p to 829p) ruled out making an approach.

Meanwhile on the small-cap index, following the announcement that bigwigs at UTV Media had voted to remove John McGuckian as chairman because of his close relationship with its largest stakeholder, TVC Holdings, the Northern Irish broadcaster jumped 12.92 per cent to 135.5p.