Market report: Friday close

By Sarah Marks for MailOnline
Updated:

 

Talk of a possible private-equity bid for Royal Bank of Scotland's insurance businesses thrust the whole sector into the limelight today as investors calculated that interested private-equity groups would inevitably look at rival providers as well.

Sarah Marks

Sarah Marks, Evening Standard

Admiral Group led the pack, up 46½p at 906p, with RSA close behind, rising 7p to 141.6p. Prudential was 29p higher at 726p with Standard Life 11p better at 263¾p. RBS, which should be posting out sales memorandum next week, rose 19¼p to 365¼p.

Whitbread's cut-price hotels could be a safe place for investors to rest during a recession. That's the theory being pushed by analysts at Citigroup, who are betting the group will benefit from lower holiday budgets.

'People have not tended to sacrifice holidays entirely, instead looking to save money on cheaper accommodation,' says Citigroup. About 70% of Whitbread profits come from Premier Inn and only 20% from its pubs and restaurants business, now consisting of Beefeater and Brewers Fayre.

Budget hotels have proved resilient in previous downturns and Citi says the recent fall in Whitbread - down 181p since the beginning of the year - has been excessive. It is upping the group to buy from hold but sticking with its 1400p target. With the bank holiday weekend just around the corner, Citi's reasoning hit home and Whitbread was 58p higher at 1277p.

In fact, a holiday spirit lifted the whole market and the FTSE 100 index soared 113.60 points to 6200.9p, boosted by an improving economic outlook in the United States. On Wall Street, falling unemployment lifted the Dow Jones 178.06 points to 13,010.

Even so, trading in London was thin with anecdotal evidence from the trading floors suggesting many UK investors had set off early before the holiday. Not, we suspect, to their local Premier Inn.

A renewed sense of optimism in the US lifted plumbing supplier Wolseley, which is heavily exposed to the US housing market, by 41½p to 541½p.

High Street retailers also found support ahead of one of the crucial trading weekends. Marks & Spencer climbed 18p to 399p while Next was 78p ahead at 1225p, making it the biggest riser in the Footsie. Next will unveil trading figures next week. Panmure Gordon predicts: 'It won't be pretty.'

The broker urges clients to sell, pointing out that Next has had seven consecutive half-years of declining likefor-like sales. Panmure adds: 'While some of the bad-news is weather related there is something else going on here.' It has pencilled in profits some 15% below the consensus.

Home Retail also shrugged off negative-comment, this time from Citigroup, and rose 9¾p to 266½p.

Canny investors are looking at testing and inspection group Intertek, 40p higher at 1002p, with fresh eyes. The shares are some way off the year high of 1050p, unfairly punished by investors who are worried about the cyclical nature of the business.

However, analysts at Goldman Sachs point out Intertek now has a better mix of services, which makes it less volatile, and can only benefit from increased focus on safety, particularly in the US. Goldman has upped Intertek from neutral to buy and raised the target price to 1203p from 1066p.

Capital & Regional received another battering despite yesterday's assurances that its exposure to a £2.9bn UK shopping fund does not put it at risk of breaching its banking covenants. C&R fell 67p to 309&frac34p. The Mall Fund, of which C&R holds 24.2%, owns 10% of the UK's covered retail space and has seen its unit value fall by 10%.

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TUESDAY'S AGENDA

• Lloyd's TSB issues a trading statement. The bank reported impressive 2007 results and raised its dividend for the first time in five years as its risk-averse approach and focus on old-fashioned banking helped it steer clear of the worst of the subprime crisis.

• British Airways releases April's traffic figures with investors keen to see the extent of the fallout from Terminal 5's botched opening. The carrier last month reported a 2.8% drop in traffic but said long-haul premium passenger numbers were holding up strongly. Short-haul premium and long-haul economy are expected to continue to be weak.

• The Chartered Institute of Purchasing & Supply's survey of the service sector will be closely watched amid fears output growth is slowing. The key Purchasing Managers Index figure last month fell to its lowest since November 2007.

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