Market report: Monday close

By Mickey Clark for MailOnline
Updated: 11:55 EDT, 5 February 2007

Could the bear run in shares of BP be about to come to an end? That was the question being posed by investors after one of the City's big guns changed its recommendation on the shares ahead of tomorrow's full-year results.

US broking house Goldman Sachs, which has been lukewarm on BP for some time, dramatically changed its recommendation on the oil giant from neutral to buy just hours before outgoing chairman Lord Browne unveils final trading numbers.

Goldman says the de-rating of BP, up 6½p today at 541½p on turnover of 43m shares, had been 'severe', with the shares having collapsed 25% since last April when the price reached 1714p. The fatal explosion at its Texas City refinery in 2005 combined with leakage last year at the Prudhoe Bay pipeline and its subsequent partial closure dented BP's image globally and caused much of the sell-off in the shares.

Goldman has told clients it expects tomorrow's results to be a potential catalyst despite the high probability of lower guidance targets as the outlook for 2007-8 improves. Its target price of 615p offers about 14% potential upside, second only to Italian rival ENI in the European sector.

Today's move by Goldman was taken against the backdrop of a rise in the oil price overnight. The global crude future rose more than $1.50 to $58.80 a barrel but eased slightly today.

Shares generally traded in a narrow range at the start week. A poor finish in New York on Friday and mixed trading in Asia today offered little incentive to City investors. The FTSE 100 index was 7 points ahead at 6317.9 in thin trading.

Star performer among blue-chips was Johnson Matthey, which was squeezed 91p higher to 1583p after being raised from neutral to buy and having its price target jacked up from 1490p to 1800p by UBS. The metallurgist has performed poorly of late but is now the Swiss broker's preferred pick of the chemicals sector. UBS says earnings are set to grow strongly over the next five years, and forecasts compound growth of 13% a year.

Man Group, the UK's largest hedge fund operator, was another star turn, adding 24p to 570¾p. Credit Suisse has repeated its outperform rating on the shares and raised its target from 570p to 630p following weekend reports that the group is planning a US listing for its shares. The broker points out that Man's funds have provided robust returns in recent months.

Traders reported another day of hectic turnover in J Sainsbury following last week's flurry of excitement. The price firmed a further 2½p to 509½p with more than 50m shares changing hands as speculators awaited fresh developments.

On Friday, a consortium of private equity companies including CVC, Blackstone and Kohlberg Kravis Roberts-expressed an interest in bidding for the supermarkets chain, which is still controlled by the Sainsbury family. Rumours today suggested Marks & Spencer, down 11p at 706½p, may throw its hat into the ring if it can gain the family's support.

Many in the City cannot see any offer from the private-equity consortium getting off the ground. It would have to bid at least 600p a share, which would value the company at more than £10bn.

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Monterrico Minerals stood out with a jump of 68½p to 366p after agreeing a 350p offer from Chinese outfit Zijin Mining that values the business at £94.6m.

Analyst Charles Kernot of broker Seymour Pierce continues to rate the shares outperform with a target of 486p - way above the terms. He reckons a counterbid could be in the offing, and points out the offer came in tandem with details of Monterrico's Rio Blanco feasibility study.

No discounted cashflow valuation was provided in the study, which would show how low the offer is in comparison with the potential value of the project.

TAKING STOCK: Sectors at a glance

BANKING AND FINANCE
Aviva is expected to report a 16% increase in annual sales tomorrow, with strong pension and investment products business making up for slower growth in the group's European markets. The UK's biggest insurer will unveil total life and pension sales for 2006 of £25.86bn, up from £22.25bn.

BUILDING AND PROPERTY
Friday's trading update from Bellway exuded confidence ahead of the spring selling season, says Numis Securities. It points out that the housebuilder's average selling price is ahead of expectations, and its position in the marketplace remains strong. The broker also says the company's second-half forecasts are secure.

CONSUMER
Shares of posh clothes designer and retailer Polo Ralph Lauren were added to Standard & Poor's S&P 500 index on Friday. The index lists 500 leading companies across major industries of the US economy. It is considered to be one of the leading benchmark indicators of performance for the overall market.

ENGINEERING
Alumasc Group will report a rise in half-year pre-tax profits from £2.7m to £3.3m on Thursday. The group's building and engineering products divisions were ahead of last year. This was despite the sustained rise in material costs, as well as delays in some public sector spending on social housing.

HEALTH
The US Food and Drug Administration has approved a new use for Glaxo-SmithKline's anti-coagulant drug Arixtra. It can now be used to treat acute coronary syndrome as well as on patients who are at risk of blood-clot complications. Worldwide sales for the drug last year were $44m (£22.4m).

INDUSTRIALS
ABN Amro has raised its rating on takeover favourite Tate & Lyle from hold to buy and sees the sell-off that greeted last month's profits warning as an excellent buying opportunity. It has lowered its price target from 860p to 730p and admits a sceptical City may need convincing about the future for artificial sweetener Sucralose.

LEISURE
The British Horseracing Board successfully appealed on Friday against a High Court decision in 2005 that it had used its dominant market position to charge Attheraces, a consortium that includes BSkyB, Arena Leisure, Ascot Racecourse, Northern Racing and other racing partners, too much for pre-race data, which bookies use to take bets.

MEDIA
Bridgewell has raised publisher Bloomsbury from neutral to overweight. This follows news that the launch date of Harry Potter and the Deathly Hallows, the seventh and final book in the series, will be 21 July. The broker has raised its pre-tax profits forecast from £15.5m to £24.2m for the current year.

NATURAL RESOURCES
Providence Resources has won partblock interest in the Morecambe Bay area of the East Irish Sea in the latest licensing round. The oil and gas explorer has identified potential leads in the new acreage and will hold a 25% stake in a consortium comprising of Challenger Minerals, First Oil Expro, Dyas and Atlantic Petroleum.

RETAILING
Bridgewell has begun coverage of Carpetright with a neutral rating but has reassured clients that long-term investors should be 'well-rewarded'. The broker believes this high-return business model can be replicated in other European markets, and expects 10% of profits from the retailer to come from outside the UK next year.

SUPPORT SERVICES
Cash machines provider Cashbox, which is up for sale, has won a contract to install and run its ATMs in up to 40 petrol stations. The deal has been struck with Motor Fuel Group, a Middlesex-based operator of forecourts. Cashbox said last week that it had received a number of takeover approaches.

TECHNOLOGY
Merrill Lynch has downgraded Sage from buy to neutral on valuation grounds because shares in the computer software services group had moved above its 270p target. It has now raised its target to 295p but sees little news emerging to drive the price higher short-term. It expects an acceleration in the group's organic growth longer-term.

TELECOMS
BT chief executive Ben Verwaayen has dampened speculation about a spate of mergers among Europe's biggest telecom companies. He told the German press such moves would make no sense. There has been a lot of talk in recent months that several of the big players were seeking out partners to strengthen their positions.

TRANSPORT
Tanfield Group's trading division Smith Electric Vehicles has signed a deal to supply Marks & Spencer with its Newton zero-emission vehicles. The High Street retailer plans to deploy the vehicles in various citycentre logistics operations, replacing its existing urban diesel fleet where possible.

UTILITIES
Morgan Stanley says Centrica's strong run has been overdone, and has repeated its underweight rating. The broker warns that falling gas prices are helpful in the short term, but do not materially influence the medium-term value of the business. Despite the lower gas prices, Citigroup has repeated its buy rating and 390p target.