Market report: Wednesday close

 

Hanson came within a whisker of record highs today as talk of a bid for the building products supplier resurfaced. The shares climbed 22½p to 799½p, as more than 4m changed hands.

Just a few weeks ago Hanson was being linked with Mexican cement maker Cemex, which later turned its attention elsewhere. Now the gossip in the Square Mile claims it's the turn of the French in the shape of another cement maker, Lafarge, which bought our own Blue Circle Industries six years ago.

City speculators say that despite the high share price and its expensive rating, Hanson remains vulnerable to takeover. It is heavily exposed to the depressed US housing market, but is unlikely to leave any potential suitor with much change out of £6bn.

Elsewhere, share prices were in fine form as they surged back above the 6300 level in thin trading conditions. This comes on the back of a positive performances on Wall Street overnight and in Asia this morning. The FTSE 100 index rose 87.2 to 6314.8

Mining shares made the early running, helped by firmer commodity prices and an upgrading of the sector by Credit Suisse. The broker says it has increased its mining weighting by 10%, to 40% overweight, and plans to add to its portfolio of diversified miners, such as BHP Billiton, 26p dearer at 965p, Rio Tinto, 100p higher at 2760p and Kazakhmys, 51p better at 1119p. The sector was also boosted by vague talk of a takeover at Vedanta, 65p dearer at 1190p. But brokers point out Vedanta, which floated little more than two years ago, is 54% owned by Anil Agarwal.

Credit Suisse is also adding 5% to global oil weightings, although it remains concerned about poor cashflow generation and visibility on oil prices. Sentiment has been bolstered by President Bush's commitment in his State of the Union address to raise US oil reserves to more than abn barrels, in order to dampen speculation about prices on world markets. BP rose 3½p to 548½p, BG 13½p to 676p, and Royal Dutch Shell 21p to 1739p.

Shares in ethanol and biodiesel producers also benefited fromBush's commitment to switch from traditional fossil fuels. GTL Resources rose 22½p to 212½p, and Renova Energy 12p to 171p.

United Utilities was cheered by positive comments from JPMorgan, with the price adding 20p to 772p. The US investment bank has raised its rating from neutral to overweight and says UU remains its preferred pick in the water sector. This year UU may dispose of its telecoms arm Thus, following the proposed sale of its outsourcing division Vertex last month.

More bad news may be on the way for shareholders of electrical retailer DSG International, hard on the heels of last week's lacklustre Christmas trading-update. The PC World and Currys group slipped 1¼p to 170¾p after broker Investec Securities slashed its profit forecast for the current year by £15m to £320m.

The DSG share price slumped last week after it reported a rise of just 3% in total and same-store sales in the eight weeks to 6 January. Problems with PC City in France and continued trouble in Italy painted a bleak outlook.

The yield is thinly covered but, given the strong balance sheet, remains pretty secure. Overall, Investec is cautious. There is scope for improved profits over the next few years, but that may prove too optimistic if underlying markets flatten out, the broker warns.

Bunzl, up 3p at 652½p, and Group 4 Securicor, 2¾p better at 190p, have been upgraded from neutral to outperform by Credit Suisse, while Rentokil Initial, 2¾p off at 161¾p, has been cut to underperform in the support services sector.

Nestor Healthcare rose 1p to 164¾p after announcing plans to raise £30.4m via a two-for-seven rights issue at 130p. The care-home provider wants the cash to pay for a proposed acquisition strategy by its Social Care business.


TAKING STOCK: Sectors at-a-glance

BANKING AND FINANCE
Insurance broker Benfield faces a loss of business from the introduction of the state-sponsored catastrophe fund in Florida. Goldman Sachs says the move could take 36p off its target for the share price by reducing Florida's property catastrophe reinsurance market. After the recent share price fall, Goldman has downgraded from buy to neutral.

BUILDING AND PROPERTY
Goldman Sachs has upgraded the US housebuilding sector to neutral, saying the rate of decline in the housing market may be slowing. The fundamentals remain troubled and investors may have to wait until 2008 before seeing any improvement. The market has been hit by falling prices and sales, due to lower demand.

CONSUMER
Citigroup says Tate & Lyle's previous bullishness was misplaced, and has downgraded the shares from buy to hold, cutting its 2007 earnings forecast by 4% to 46.4p a share. The broker warns it is hard to see why sucralose sales should increase materially beyond 2007, and fully utilising the new Singapore plant looks ambitious.

ENGINEERING
Pratt & Whitney jet engines-to-Otis lifts group United Technologies attracted a rush of positive brokers' comments after beating profit forecasts. Fourthquarter profits were $865m (£437m) against $626m a year earlier, fuelled by strong aviation electronics demand. Its Sikorsky helicopters arm had some problems, however.

HEALTH
Goldman Sachs reckons Smith & Nephew's failure to secure a deal with US rival Biomet could work in its favour. The broker argues that S&N may now be forced to improve its own cost and capital structure in order to pre-empt being taken over. Goldman has raised its target from 470p to 580p but keeps the shares at neutral.

INDUSTRIALS
Defence contractor Chemring traded at record highs after posting solid fullyear profits and highlighting a strong order book. KBC Peel Hunt has repeated its buy rating on Chemring, and still sees the group as a potential takeover target. Numis expects to raise its forecast, and has put its add rating and 1745p target under review.

LEISURE
Collins Stewart has repeated its buy rating on Playtech, the Aim-listed designer and developer of software for the gaming industry. It comes on the back of news that Playtech's Videobet subsidiary has signed a contract with Mexican casinos operator Entretenimiento de Mexico, which has 4000 video slot machines.

MEDIA
Rupert Murdoch's News Corp has joined the Chandler family, whose forebears built up the Los Angeles Times, in its bid to buy newspaper and TV company Tribune. Murdoch's main aim is to cut printing and back-office costs at the lossmaking New York Post. His plan is to buy a stake in New York's Newsday newspaper, owned by Tribune.

NATURAL RESOURCES
Bridgewell has repeated its buy rating on Imperial Energy following a 41% increase in oil reserves at its Kiev-Eganskoye Field in Siberia to 321 million barrels. Imperial has also appointed Merrill Lynch and ABN Amro Hoare Govett as joint brokers prior to the listing of its shares on the main market.

RETAIL
Tesco held up relatively well despite concerns the Competition Commission might single out the UK's biggest food retail for special attention following its inquiry about unfair practices. Dresdner Kleinwort has kept its hold rating on Tesco, noting the Commission had not found any major issues regarding planning or land banks.

SUPPORT SERVICES
Merrill Lynch reckons shares of Davis Service Group are too expensive, and has cut them from neutral to sell. It blames margin pressure in UK textiles, and estimates fair value at 508p. But Davis operates in a low-growth, capital-intensive industry dominated by large, price-sensitive clients such as hotels and hospitals.

TECHNOLOGY
Computer services group LogicaCMG failed to impress with its 2006 trading update. Credit Suisse described its performance as 'simply not good enough'. The main problem has been the lack of suitably qualified staff to meet customer demand, and tight labour markets. The broker has repeated its outperform rating.

TELECOMS
Buying of shares by directors gave Cable & Wireless a boost. Tony Rice has bought an extra 300,000 shares at 1601/4p, for a total of £480,750, stretching his holding to three million shares, or less than 1% of the company. John Pluthero has bought a further 62,402 shares and now holds 1.06m.

TRANSPORT
Some positive news at last for European aircraft maker Airbus Industrie. It says it has received a firm order for 30 of the versatile twin-engined A319s from Spirit Airlines. It added that deliveries of the 144-seat planes to the Florida-based airline would take place between October 2009 and the middle of 2013.

UTILITIES
Bid speculation that carried Centrica higher last year has evaporated. Russia's Gazprom was seen as a buyer for the British Gas group in order to establish a foothold in the UK. Despite the absence of a bid, broker Evolution believes the shares still have life. It has repeated its buy rating and set a 400p target.