Market report: Monday close
There is less than a week to go before the smoking ban comes into force in the UK, and although pub operators may be worrying about their profits, there are those in the City who still think they make attractive investments.
Citigroup has raised Enterprise Inns from hold to buy with the target price increased from 762p to 859p as part of its pub-sector review. The broker believes if Enterprise can convert to a real estate investment trust (Reit), the shares will be worth 60% more than the current price of 686½p, up 12½p.
But if Enterprise does not achieve Reit status, the scope for improvement in the share price is less than 10%. Citigroup says that despite rising bond yields, there are still good reasons to back the pub sector. It has altered its valuation method as part of its review, and as a result has changed its price targets.
Mitchells & Butlers, up 1p at 869p, has had its target raised by 12% to 1039p from 931p and its buy recommendation repeated. Citigroup says that as well as the change in valuation, it is positive on the company, given it is in discussions to crystallise the value of its property. But it has reduced its price target on JD Wetherspoon, up 12;p lighter at 569p, from 1039p to 931p based on its new valuation method.
Investors took a pasting in New York on Friday, amid growing concern about rising interest rates and the fallout from the collapse in the subprime loans market. Against such a backdrop there was only one direction share prices were heading in London today - down. Even so, the FTSE 100 index managed to rose 21 to 6,588.4, underpinned by a strong opening rally this afternoon on Wall Street, where the Dow rose 66.65 to 13,426.9.
Mining shares were among some of the worst performers after JPMorgan Cazenove downgraded Anglo America, off 42p at 2995p, from outperform to in-line. It moved Antofagasta, down 10p at 608½p from in-line to underperform. The broker complained the drivers for Anglo's strong performance of late were now less compelling, while Antofagasta was looking expensive. It upgraded BHP Billiton, up 15p at 1390p, from in-line to outperform.
The London Stock Exchange (LSE) retreated 14p to 1341p as the City continued to reflect upon its proposed £1.1bn takeover of rival Borsa Italiana. The merger is expected to result in cost savings of almost £20m a year, but there are fears the deal may be sabotaged by the LSE's biggest shareholder, Nasdaq. If the deal goes ahead, Nasdaq would see its 30% stake diluted to 22%. The LSE blocked previous attempts by Nasdaq to gain control.
Investment bank Fox-Pitt Kelton says the LSE is paying a price of about 22 times earnings which, in the context of other exchange deals, is not expensive. It equates to a similar price paid by Nasdaq for OMX, and the New York Stock Exchange's takeover of Euronext.
Smiths Group slipped 7p to 1142p on turnover of almost threem shares. JPMorgan Cazenove has placed a line of 224.4m B shares, unmoved on 360p, at 365p to satisfy the dividend payment that has already been declared by the aerospace engineer. Kelda, the old Yorkshire Water, rose 7p to 938p while the B shares fell 207½p as 125.1m were placed to finance the dividend.
A bullish first-half trading update from builder Persimmon, down 13p at 1190p, boosted rival Barratt. The Footsie 100 newcomer helped lead bluechips higher with a rise of 9p to 1014p.
Engineer Weir firmed 2½p to 723p after Citigroup lifted its rating from hold to buy and jacked up its target from 635p to 805p. The broker has upgraded its earnings-per-share forecasts for 2008 by 11%.
Topps Tiles shares hovered just above their low for the year, 1½p dearer at 237½p. Seymour Pierce says recent weakness in the shares provides investors with the ideal buying opportunity. It has raised its rating from outperform to buy and maintains its 279p target.
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