Four blue-chip firms - Rolls-Royce, Smith & Nephew, Shell and Kingfisher - posted second-quarter figures comfortably outstripping analysts' expectations yesterday, helping spread positive sentiment across the market. The FTSE 100 index ticked up 52.4 points to 5,929.5.
Kingfisher rose 8.25p to 244.75p, despite divided opinion on the stock among analysts. Some, including the research team at Merrill Lynch, suggested yesterday's sales figures marked the end of the DIY retailer's recent woes. In a note entitled "Inflection point", they noted the strong performance of the Screwfix division and the slowing decline of B&Q's comparable sales from 8.8% to 2.4%.
"The inflection of B&Q's like-for-like sales supports our view that the chances of a recovery should increase dramatically over the next 12 months and drive a material appreciation of the share price," Merrill analysts concluded, rating the stock a "buy" with a price target of 270p.
In the opposite camp was Kingfisher's joint house broker Credit Suisse, which holds a "neutral" rating on shares and a target price of 210p. "We already have a reasonable second-half sales improvement factored into our estimates and as yet we feel signs of consumer recovery are at best slight ... This leaves the valuation continuing to look exposed in our view," it said.
Elsewhere, there were less ambiguously encouraging second-quarter figures from Smith & Nephew - up 30.75p at 462.75p and top of the FTSE 100 leader board. Positive investor sentiment is seeping back into the stock after a tough nine months as management reiterated its confidence that product launches in the second half would fuel sales growth.
The group has just won regulatory approval in the US for its hip resurfacing product, designed for younger patients. A lot of bears in the stock appeared yesterday to be covering short positions. Analysts at Dresdner Kleinwort said: "We suggest investors start buying into the stock with an eye on its recovery over the second half and through 2007."
Mining stocks were also in demand, with copper plays Kazakhmys and Antofagasta up 76p to £12.61 and 19p to 416.5p respectively. Copper prices rose 3% after riots at the Chambishi mine in Zambia and before a strike vote today at the Escondida mine in Chile. Sector peer Xstrata rose 107p to £21.41 as investors backed its intention to buy up to 5% of Canadian nickel miner Falconbridge as part of its takeover efforts.
Royal Dutch Shell A shares climbed 38p to £19.10, pleasantly surprising the market with a 26% jump in second-quarter profits. The group's performance looked particularly strong set against recent disappointing numbers from sector peers BP and BG.
Investors also took cheer from Shell's insistence that it would meet production targets for next year despite persistent attacks on its facilities in Nigeria by separatist rebels. The largest oil producer in Nigeria, Shell warned it would pump only 3.4m barrels of oil equivalent this year. There were gains across the wider oil and gas sector after it emerged that US government figures showed stockpiles of petrol were depleting at a much faster rate than anticipated.
This comes on top of heightened supply disruption concerns due to diplomatic tensions with Iran over its nuclear programme as well as the ongoing conflict between Israel and Hizbullah in Lebanon. BP rose 14p to 648.5p while BG gained 12.5 to 712.5p.
Jet engine maker Rolls-Royce, up 21.25p to 442.75p, impressed investors with strong after-market sales growth - a trend the company is confident will continue. Rolls-Royce also revealed its order book had risen from £23bn to £25bn while cost-saving measures continued to more than offset increased energy and raw material costs as well as the adverse impact of currency movements. Confidence for future growth comes from strong figures on new engine deliveries, all of which will prove a rich source of after-market sales throughout their lifetime.
AstraZeneca also posted strong second-quarter figures, but shares lost ground - down 111p to £32.09 and the biggest FTSE 100 faller - on what some analysts suggested might be concern at the group's full-year guidance.
Psion fell 29.25p, almost 20%, to 122.25p after the technology group said heightened competition and adverse currency movements meant interim profits were likely to be "materially" short of expectations. There followed broker downgrades from Panmure Gordon and Bridgewell as analysts remained unimpressed by good sales growth, preferring to focus on margin pressures the business continues to face. "Revenue growth is clearly an early indicator of the underlying level of market demand, but profitability must stabilise before we can become more positive on the stock," said Panmure.
Sarantel rose 3p to 12.5p after the company, which makes telecoms and satellite radio antennas, revealed four directors had been in the market buying shares representing more than 1% of the company. A profits warning last week halved the value of the stock.
There was also boardroom stock purchasing at Havelock Europa, where finance director Grant Findlay bought 20,000 shares at 137p. Shares closed up 6.5p at 142.5p.
More Misys woes
Having thrown open its books to potential bidders, ailing software firm Misys gave little away about the process yesterday as it reported an expected drop in annual profits. After a dire profit warning last year and a bungled attempt to lock in senior managers, Misys has received a management buyout offer from its chief executive Kevin Lomax, a takeover approach from private equity firms Permira and General Atlantic and interest from three former directors who want to keep the firm public. The City reckons the private equity bidders have the upper hand and they are expected to break the business into its three parts - healthcare software, banking systems and its IFA operation. Shares in Misys, which made profits of £69m - down from £73m - closed down 3p at 242.5p.