British Airways hits the heights

By Geoff Foster for MailOnline
Updated: 02:47 EDT, 10 August 2006

SUMMERTIME and the living is not that easy. City dealers are having to feed on scraps as the peak holiday month of August takes many investment ideas out of the country and reduces the volume of transactions to a trickle.

It is left up to the major broking houses themselves to generate business - and that is when highly-paid number crunchers earn their corn.

An analyst writes a bullish note about a leading blue chip, which now always includes a healthy increase in the target price, and bingo! Clients take the bait and millions of shares are eventually traded.

UBS airlines analyst Tim Marshall certainly put rocket fuel into British Airways' share price yesterday by not only reiterating his bullish stance but by lifting his target price to £5 from 420p.

The stock took off and touched 393¾p before it closed 11¾p higher at 390p on increased turnover of 18.2m. Marshall believes BA stands at a crucial point in its goal of achieving a 10% operating margin by 2008.

A strong revenue environment, capacity reduction and settlement with the unions on the pensions issue makes the target achievable. He has raised his earnings-per-share forecast by 16% to 58p, some 20% above market expectations.

Reports recently suggested that the airline's pension deficit had ballooned to around £2bn. Actuaries put the deficit at £928m following the airline's last three-year review in 2003. Pension negotiations start next month.

Cloudy for most of the session, blue skies appeared towards the close as the Footsie retrieved a 40-point fall to finish 42.4 points higher at 5860.5.

The late recovery owed much to an early 77-point leap on Wall Street on further consideration of the Fed's decision to keep interest rates on hold at 5.25% for the first time in more than two years.

A buoyant sales outlook from giant network-equipment maker Cisco Systems also helped overall sentiment and prompted a 33- point jump in tech-heavy index Nasdaq.

Utilities were in demand for their defensive qualities. International Power gained 7¾p to 306¼p, Scottish & Southern Energy was up 24p to 1229p and Scottish Power rose 9½p to 607½p. British Telecom buzzed 6¼p higher to 249½p.

Volatile online gaming stocks were on red alert again after the German press reported that the state of Saxony is about to withdraw the betting licence for Austrian online betting operator Bwin.

Worries about German regulation is the last thing the sector needs after the recent turmoil caused by the arrest in the US of the former boss of BetonSports.

PartyGaming lost 6p to 112¼p, 888 Holdings fell 8¼p to 156¾p and Sportingbet slipped 8p to 272p.

Heavy selling left inkjet printing technology group Xaar 37¾p down at 117¼p. Investors ran for the exit on hearing that certain customers, accounting for around 15% of sales, are being investigated by the central Chinese customs authorities over the non-payment of import duty.

China accounts for about 50% of group revenues. Altium downgraded to sell ahead of interims.

Speciality chemicals company Elementis, whose chairman is Edward Bramson, firmed 1½p to 87p despite an ABN Amro placing of 21m shares at 82½p a share.

Fibernet touched 56½p on news of a bid approach and closed 13½p higher at 52½p.

Broker Bridgewell believes private equity investors or trade buyers could be interested, attracted by the company's national network and long list of quality blue-chip clients, including many broadband providers.

Numis analyst Will Wallis prompted a 18p collapse to 93½p in Biofuels.

He downgraded to sell from hold because he believes the group's disastrous earlier hedging strategy has left it with substantial debts and the need for a refinancing during the second half of the year provides further uncertainty.

New chief executive Peter Searle's purchase of 1m shares at 49p helped recruitment group Spring climb 1½p to 51¾p.

While awaiting further bid developments, Monstermob cheapened 7p to 63p. Dealers believe a trade buyer will be interested in the mobile phone games and ringtones provider but any bidder could be put off by extra liabilities of between £30m-£40m.

•l; ANALYSTS will soon have to make serious upward adjustments to their Helphire 2007 earnings forecasts. The car accident assistance specialist accelerated 11p to 361p after reporting that hire volumes in July and August continued to grow, with a record number of hire starts being set on the last day in July.

Consensus forecasts stand at between £41m and £47m. Word is that £50m-plus is easily achievable.