British Airways was in demand yesterday as the new year address of its recently appointed chief executive found its way on to the internet.
Yesterday, Air & Business Travel News (www.abtn.co.uk) published what appeared to be Willie Walsh's 2006 message for BA staff. What caught the eye of the City was Mr Walsh's comments on margins.
"The cost outlook, not least on fuel, makes it impossible for us to achieve a 10% operating margin in the current year, but I believe we can achieve at least 8.5% if we remain cost-conscious and have some respite from external factors," Mr Walsh said.
Analysts at the blue-chip broker Cazenove said an 8.5% margin target implied earnings per share of 31.8p for the fiscal year to March 2006. It said: "This would put BA on a 2006 adjusted price-earnings multiple of 9.4 against an average for its peer group of 12."
With investors taking the view that such a discount would be undeserved, British Airways shares climbed 17.75p to 339.5p - the second-biggest rise in the FTSE 100.
In the wider market, leading shares recouped nearly all of Tuesday's losses. The final scores showed the FTSE 100 up 42.7 points at 5,731.5 with P&O, the top performing, rising 29.5p to 498.5p on hopes of a bidding war.
After the market closed on Tuesday, P&O revealed that it had received a conditional 470p-a-share offer from PSA, the state-owned Singapore port operator, which trumped an earlier agreed 443p cash offer from DP World. Mark McVicar, a transport analyst at Dresdner Kleinwort Wasserstein, believes P&O will eventually be acquired by one of these two players at a price between 500p and 550p.
Elsewhere, the FTSE 250 gained 84.9 points to 8,928 boosted by a strong performance from the London Stock Exchange. Its shares gained 43p to 658p - a record high - as analysts upgraded their earnings forecasts to take account of Tuesday's strong trading update. Meanwhile, the FTSE Small Cap index advanced 22.5 points to 3,396.9.
Tobacco stocks failed to join yesterday's rally, however, after ABN Amro turned negative. "It was a great party - with sector outperformance of 400% since the dotcoms imploded - but the primary driver of above-average growth at below-average prices no longer holds true," the Dutch brokerage said as it downgraded British American Tobacco, off 9p to £12.69; Gallaher, down 11p to 854p, and Imperial Tobacco, 9p cheaper at £16.90.
The housebuilder Persimmon, which was the best performing FTSE 100 stock of 2005, was also under pressure. Its shares fell 16p to £12.44 after Deutsche Bank called time on its recent strong run. The German broker, which cut its rating to "hold" from "buy", said the synergy benefits from its Westbury acquisition were now fully reflected in the Persimmon price.
On the upside, Wolseley, the building supplies group that makes more than 50% of its profits in the US, gained 37p to £12.83, excited by Home Depot's $3.2bn (£1.8bn) acquisition of Hughes Supply. But analysts were puzzled by the rise, arguing that the deal - Home Depot's second acquisition of a builders' merchant in six months - is actually bad news for Wolseley because it now faces a more formidable competitor.
Away from the blue chips, the broadband internet company Pipex was the most actively traded small cap stock. More than 81m shares changed hands as the US brokerage Merrill Lynch drew investors' attention to the fact that Pipex owns one of the UK's two national WiMax licenses. WiMax is a wireless broadband technology that could allow Pipex to launch a broadband internet service that bypasses BT's exchanges.
Elsewhere, BATM Advanced Communications, which makes telecoms equipment, was marked 3.7p higher to 37.5p on rumours of a link-up with Microsoft, while Pace Micro Technology, the satellite set-top box maker, gained 5.5p to 61.5p on hopes of further sector consolidation. Two months ago Cisco Systems launched a $6.9bn offer for Scientific-Atlanta, the leading US set-top box maker.
Profit-taking following Tuesday's 40% rise left ITM Power 11.5p cheaper at 199p. Executives are jetting over to the US next week to update institutions on the progress of its electrolyser, which turns electricity into hydrogen.
Uniq, a sandwich and salad supplier, jumped 4.25p to 111p as traders realised that one of the company's biggest customers is Marks & Spencer, which on Tuesday announced a 5.1% rise in third-quarter food sales. Brandon Hire added 5p to 168.5p on rumours that Speedy Hire, steady at 830p, was planning to gatecrash management buyout talks.
TrafficMaster, the vehicle tracking and information group, climbed 3.75p to 36.75p on news that Ford will use its Smartnav system in a UK promotion. Traders also reckon TrafficMaster could be a takeover target for the RAC.
Late rumours of a merger with Numis, 9p higher at 277.5p, saw the City broker Panmure Gordon rise 15.5p to 218p, while Z Group moved up 4.5p to 102p on the launch of the latest version of its internet acceleration software.
Shares in music group EMI closed higher yesterday despite trading ex-dividend. The shares gained 7.25p to 242p in heavy trading excited by speculation that the company could be a takeover target for Apple Computer, whose shares are at a record high. City dealers reckoned there could be something to the rumour, noting that Apple, which dominates the market for music downloads through its iTunes software, has tried to acquire a music company before. In 2003 it held long-running discussions with Vivendi, the French media group, with a view to purchasing its Universal Music division. However, analysts were sceptical about yesterday's EMI rumour, noting that rival record labels would probably shun iTunes if Apple bought one of their biggest competitors.