Market report: Thursday close

By Mickey Clark for MailOnline
Updated: 12:15 EDT, 19 April 2007

A two-way pull between brokers has developed in shares of former bid target ITV - one valuing stock in the broadcaster at only 80p.

The shares dipped 0.4p to 113.1p after HSBC warned that investors ignore the company's sharp drop in profitability at their peril. It says the company's operations are suffering from short and medium-term weakness.

Advertising revenue continues to fall, down 8% last year and expected to decline by even more this year, while programme content is becoming increasingly expensive.

Profits before tax, interest and amortisation slumped 18% last year and a hoped-for recovery this year has disappeared with the demise of its latenight phone-in quiz ITV Play and rising investment in content. HSBC warns this may have sliced £100m from profit forecasts since November.

The broker's views will come as bad news for shareholders who chose to reject last year's bids from Virgin Media and the Greg Dyke-led consortium. In stark contrast to HSBC, Goldman-Sachs yesterday set a target price for ITV of 135p.

Shares generally extended yesterday's losses with the FTSE 100 index shedding 8.8 to 6440.8. Investors are fretting about a possible interest rate rise in China after another big surge in economic growth. Those worries spilled over into New York this afternoon, where the Dow fell 35.30 to 12,768.50.

Chinese demand has been the main plank in the support for mining shares, so they were marked lower. Kazakhmys fell 17p to 1151p, Antofagasta 10¾p to 510¼p, and Rio Tinto 42p to 3077p.

Merrill Lynch reckons BP is now looking valued and has downgraded shares of the oil giant from buy to neutral. The shares fell 4½p to 569½p, which compares with Merrill's target of 580p.

The broker points out that the shares have rallied by some 13% in the past four weeks alone. It remains optimistic about prospects for further recovery in BP in the longer term, but says it sees few catalysts that can sustain outperformance in the short term.

Looking ahead to the group's first-quarter results next Tuesday, Merrill sees little scope for positive surprise. Its valuation call on the group places the shares on 10.4 times 2008 estimates, in line with the sector average, and a 2007 dividend yield of 3.8%, which compares with a 3.7% sector average.

Word is Morgan Stanley has raised its forecast for the oil price from $50 to $60 a barrel and is tipping BG Group, down ½p at 725p, and French giant Total as its best buys in the sector.

Imperial Energy remained a weak market, extending yesterday's heavy losses with a fall of 113p to 1114p. Russia's environmental watchdog accuses the company of artificially inflating its oil reserves. Imperial says the accusations are without foundation.

Punch Taverns celebrated its membershipof the FTSE 100 index by selling a total of 869 leased and tenanted pubs in England and Wales to Admiral Taverns for £326m. The company plans to finance the deal by issuing new shares and 3.5m preference shares. The balance will be used to cut debt. Punch has replaced Gallaher in the index following its takeover by Japan Tobacco.

The City liked first-quarter new-business numbers from Prudential, up 11½p at 745p, which were achieved despite a weaker dollar. The company said most of the gains were achieved in Asia, which also helped to offset a poor performance in the UK.

Market research specialist Taylor Nelson Sofres fell 1p to 235p after UBS raised its rating from neutral to buy and its target from 240p to 280p. It reckons parts of the business are potentially attractive targets for trade buyers, such as the big advertising agencies. A leveraged buyout at 280p might also be contemplated by private-equity companies.

TNS's US operations are being turned around and are expected to return to modest growth this year.

BANKING & FINANCE
SociÈtÈ GÈnÈrale shares were in demand as the battle for ABN Amro fuelled speculation the sector will see more mergers and acquisitions. The French bank is seen as a prime target after reports Italy's Unicredito Italiano may be interested in a tie-up.

BUILDING & PROPERTY
Iraq's oil reserves could be double original estimates, leading consultancy IHS claims, adding 100bn barrels to the total and making Iraq the world's second-largest source of oil. IHS reckons Iraq could boost output from twom barrels a day to fourm over the next five years.

ENGINEERING
Eads will not get involved in legal action by its Eurofighter subsidiary against the Austrian government if it cancels a e2bn (£1.36bn) order for 18 jets. Austria queried the contract because of business dealings between an Eads lobbyist and the wife of an Austrian air force major general.

HEALTH
Bridgewell has repeated its buy rating and 200p target on Allergy Therapeutics following completion of safety and tolerability studies for its grass allergy vaccine MPL. The tests show Allergy has one of the shorter sublingual treatments of eight weeks - half that of its competitors.

LEISURE
Pubs chain Mitchells & Butlers will tomorrow replace Scottish Power in the Footsie 100 index following its takeover by Iberdrola. M&B pipped discount airline easyJet, posh retailer Burberry and housebuilder Barratt Developments to the slot.

NATURAL RESOURCES
Dana Petroleum's acquisition of Devon Energy's Egyptian operation, has been given the thumbs-up by Bridgewell, which describes it as strategically sensible. But given industry interest in the region, the broker's first impression is the deal will not be immediately value enhancing.

RETAILING
DVD and computer games retailer Choices UK's share price more than halved after it warned that its performance for the second six months to July will be substantially below market expectations. Seymour Pierce points out interim results this month painted a much improving picture.

SUPPORT SERVICES
Datacash group deputy chairman David Bailey has raised £247,000 by selling 100,000 shares at 247p. It reduces his stake in the company, which supplies outsourced solutions for retailers, to 555,562 shares, or less than 1% of the company. Datacash reached a peak of 250p this week.

TECHNOLOGY
Embedded computer boards maker Concurrent Technologies has launched an advanced mezzanine for use in Advanced or MicroTCA systems. AMC boards, which support storage capabilities, are one of its four major product ranges.

TELECOMS
Australia's Macquarie Bank has bought the British emergency services radio network, Airwave O2, from Telefonica for £1.9bn as the acquisitive firm extends its reach in European telecommunications infrastructure. Airwave's network covers 99% of the country.

TRANSPORT
Goldman Sachs has downgraded National Express from neutral to sell but raised its sum-of-parts valuation from 959p to 1100p. The broker says the shares have enjoyed a strong performance lately and there is uncertainty over rail income with two franchises due to expire this year.

UTILITIES
ING has begun coverage of coalfired power generator Drax with a sell recommendation and a 650p target. The broker says enthusiasm generated by the rebound in electricity prices is premature and expects sustained structural oversupply in the UK gas market this year and next.