Market report: Thursday close

By Mickey Clark for MailOnline
Updated: 12:12 EDT, 27 September 2007

Engines order from BA gives Rolls a big lift Stand by, ready for take-off ! That was the message to shareholders of Rolls-Royce today after the aeroengines group emerged as the most likely beneficiary of the British Airways £7bn order for a new fleet of state-of-the-art passenger aircraft.

The order for a total of 61 new planes - 12 Airbus 380s and 24 Boeing 787 Dreamliners, with options on a further 25 aircraft - is the biggest single order by the national carrier in almost a decade. BA wants Rolls to power all the aircraft with its Trent engines and provide its TotalCare after-sales service as well. The first jets are due for delivery in 2010.

The contracts provide a huge lift to Rolls and a snub to main rival General Electric of America. Brokers say Rolls has found the going difficult of late after taking on GE head to head. They add that BA has been selective with its choice of aircraft, picking ones that are more environmentally friendly and made of lightweight materials, meaning they will also be cheaper to run.

The shares rose 3p to 524p, but remain some way off the year's high of 570p. BA jumped 15¼p to 384¼p. They touched a peak of 577½p in February but have since been hit by industrial unrest, increased airport security, rising fuel costs and more competition.

The rest of the London market took its lead from Asia. The FTSE 100 index climbed 53.4 to 6486.4 in another day of thin trading, and is now almost back to its levels before the start of the credit crisis in July. But Wall Street failed to maintain its early pace this afternoon with prices coming off the boil after a set of disappointing new house sales.

Takeover speculation gave Northern Rock a further lift of 11.5p to 193.5p. Alliance & Leicester jumped 62p to 795p and Bradford & Bingley 18¾p to 310p. UBS describes them as cheap, and has repeated its buy rating. It reiterated its neutral stance on HBOS, up 44p at 917p.

Meanwhile, JPMorgan has repeated its underweight rating on HBOS (up 43p to 916p) and on Bradford & Bingley. It has also cut its target for HBOS from 1070p to 830p and B&B from 350p to 270p. It sees no reason for investors to rush back into the High Street banks.

The house builders enjoyed something of a bounce following the recent credit crunch-related sell-off. Taylor Wimpey rose 17p to 275p, while Persimmon jumped 43p to 953p and Barratt Developments 27p to 753p on further reflection on yesterday's full-year results.

Retailers also had a better day with Marks & Spencer, up 24p at 612½p, leading the way ahead of results soon. It met several brokers over dinner last night and appears to have made a favourable impression. There were also gains for Home Retail, up 16p at 372½p, DSG International, up 3.7p at 133.6p, and Kingfisher, 5.2p higher at 180.3p.

One for the notebook is Sterling Energy, ¼p cheaper at 11¼p, having just about picked itself up from longtime lows in recent days. The driller actually makes some profits from production in the US but its exploration prospects are more interesting. It is drilling further wells in Texas and Louisiana, is excited about a couple of prospects off Gabon and is moving to the development stage off Mauritania.

The big story could, however, be Madagascar. Sterling has teamed up there with global giant Exxon, and identified potentially oil-bearing or gas-bearing structures, according to finance director Graeme Thomson.

He adds that, while analysts had been expecting some drilling to take place in Madagascar within the next four years, Sterling might sidestep tests and go straight to drilling next year.

Taking stock

BANKING AND FINANCE
Zurich Financial, owner of Eagle Star, today tied up with TomTom, the leading satellite navigation system provider, to offer discounts on insurance to people who install the system. It said drivers felt more relaxed, less stressed and safer when driving with satnav. Zurich customers will also get a discount on TomTom.

BUILDING AND PROPERTY
Carillion has won a £175m contract to construct new schools in South Tyneside and Gateshead under a public private partnership. It will build and refurbish 14 secondary schools, which will open to pupils by January 2012. The company will invest £2m of equity, and service the buildings for 25 years.

CONSUMER
First-half like-for-like sales at Coffee Republic-operated outlets fell by 5.6% - in line with expectations. Like-for-like franchise sales coffee at the deli bar operator were up 12.6%. Since early 2007, it has been receiving about 75 enquiries a week about franchises and has signed five regional development franchisees.

ENGINEERING
Mining giant BHP Billiton is considering a major investment in its railway in the iron-ore rich Pilbara region of north-western Australia as part of a $20bn (£10bn) expansion of the division. BHP already operates almost 600 miles of its own private railway there, allowing it to avoid the sclerotic state-owned infrastructure.

HEALTH
Tony Weir, a non-executive director at Biocompatibles, has bought 2,627 shares in the medical technology company, which makes drug-combination products for cancer treatments. The acquisition follows a stock purchase arrangement earlier this month, allowing the stake to be paid for out of his fees.

INDUSTRIALS
Johnson Matthey shares climbed after a positive trading update as first-half sales were buoyed by rocketing demand for catalyst devices and strong platinum prices. Merrill Lynch retained its neutral rating for the chemicals company, remaining concerned that its valuation premium may put the brakes on future stock performance.

LEISURE
TUI Travel looks like a good resort for buyers as the holiday company's cost restructuring programme pays off and it looks set to meet trading forecasts. The tour operator's strong sales at the end of the summer compensated for a comparatively poor start and bookings for winter breaks and next summer already look strong.

MEDIA
Charles Black, the vice chairman of Bloomsbury, has bought 26,000 shares in the Harry Potter publisher. The acquisition lifts his holding in the business to 152,000, or 0.21% of the total issued stock. The London-based independent publisher reported a 13% drop in first-half profits earlier this month.

NATURAL RESOURCES
The non-executive chairman of Soco International, Rui de Sousa, has raised his stake in the oil and gas exploration business to 1.06% after exercising 40,652 warrants owned by his company, New Falcon Oil. Sousa now holds almost 770,000 shares in the firm, which has major operations in Yemen, Russia and South-east Asia.

RETAILING
Numis says clients should take advantage of the recent weakness in Topps Tiles to buy the shares. It continues to rate them a buy with a 270p target. The price is currently trading below 200p, which the broker describes as unjustified given that earnings and dividends are 18% higher than those achieved two years ago.

SUPPORT SERVICES
The management of Care UK remains upbeat about the future of the health and social care provider as its residential division continues to expand. Citigroup reiterated its buy rating, citing the long-term growth potential of the business as the population ages, especially given the current deficiency in nursing home space.

TECHNOLOGY
Micro Focus has made good progress across the core business and its acquisitions since the end of the first quarter. The software specialist expects its full-year profit margins to remain consistent at 38%, and says that it is confident of achieving full-year revenue growth similar to that of last year.

TELECOMS
Telecom regulator Ofcomhas has begun a wide-ranging fact-finding mission designed to map out the future structure of the UK broadband access markets. It aims to maintain the industry's competitiveness with other countries. Ofcom warns the UK's copper-based telecom networks will be unable to meet demand in years to come.

TRANSPORT
Aeroflot Russian Airlines is not interested in buying the Italian state's 49.9% stake in Alitalia. There had been talk Aeroflot was ready to offer £500m, having expressed an interest in acquiring Alitalia in May when there was an unsuccessful government auction. Aeroflot has not been contacted by Alitalia's adviser Citigroup.

UTILITIES
A trading update from United Utilities made no mention of the UU Electricity disposal. But Credit Suisse still expects the group to complete the sale by the year-end. That would be followed by a cut in the dividend, although UU would then be able to return 142p a share to backers. It rates the stock underperform with a 708p target.