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Market report: Friday close

By Mickey Clark for MailOnline
Updated: 12:10 EDT, 9 May 2008

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The prospect of a massive rights issue of between £3bn and £5bn by Imperial Tobacco has done little to quell Credit Suisse's appetite for its shares.

Mickey Clark, Evening Standard

The broker points out that Imps' shares, up 10p at 2494p, have underperformed those of its main rival British American Tobacco, up 11p at 2027p, by some 10% so far this year on the back of BAT's stronger earnings momentum and the likelihood of a share overhang. It has raised its rating on Imps from neutral to outperform and jacked up its target from 2550p to 2750p.

Shares on both sides of the Atlantic limped towards the end of the week, suffering sizeable losses. The FTSE 100 index fell 74.5 points to 6196.3, during the day's trading, undermined by a further surge in the oil price to more than $126 a barrel, it eventually closed up 9.85 at 6270.8. On Wall Street, the Dow fell 104.8 to 12,726 after the latest trade deficit narrowed to $58.2bn in March, following a drop-off in imports of cars and crude oil. Dealers say it was evidence of a further slowdown in the US economy.

Banks were among the main casualties. Barclays fell 11½p to 451½p after Pali International downgraded the shares from neutral to sell and cut its target from 600p to 430p. The broker is sceptical of the message coming from management as it repeats its economic profit for a four-year period. Royal Bank of Scotland fell 10¼p to 347p and Lloyds TSB 10¾p to 433p.

After a review of the pubs and restaurants sector, JPMorgan says news that Enterprise Inns can qualify as a real estate investment trust (Reit) has caused a jump in shares across the sector. The broker says the move by Enterprise, down 11½p at 487½p, and rival Punch Taverns, off 21p at 601½p, may be justified but it now thinks it will focus investors' minds back on fundamentals.

It has cut 2009 forecasts by between 5% and 8% to reflect a slower rebound from the smoking ban and cost pressures. It doesn't expect competition to become easier until the fourth quarter, and urges investors to be selective.

Punch, rated overweight, remains JPMorgan's top pick following the Reit news. It has upgraded Greene King, 2½p cheaper at 587½p, from neutral to overweight and Marston's, 7¼p better at 232p, from underweight to neutral. It has cut JD Wetherspoon, 5½p cheaper at 310p, and The Restaurant Group, ¾p easier at 169p, from overweight to neutral and remains cautious on Mitchells & Butlers, 4¼p dearer at 348¼p.

Speculative buying lifted Blinkx 6½p to 31½p, with more than 27m shares changing hands. The video search engine, which was spun out of software developer Autonomy, is said to be the target of a 60p-a-share offer from Rupert Murdoch's News Corp. But Murdoch is unlikely to have a free run at Blinkx, which has a price tag of £94.4m. Word is Google and Microsoft may also throw their hats into the ring. Blinkx yesterday launched its new online video indexing technology. It is said to be interested in obtaining a Nasdaq listing for its shares in the US.

Flomerics raced ahead 16½p to 105½p after the simulation software specialist rejected an offer worth 104p a share, or £25.2m, from Mentor Graphics. Flomerics says the bid significantly undervalues it, and intends to look at alternatives, including approaches from other interested parties.

DSGi marked time at 70p after HSBC cut its rating on the electrical retailer from overweight to neutral but increased its target by 5p to 75p.

Thomas Cook shrugged off a downgrade by Credit Suisse to post a rise of 3¼p to 276½p. The broker has moved from outperform to neutral and started TUI Travel, 2¾p higher at 257¼p, at outperform. It is raising its target on Thomas Cook from 274p to 315p.

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MONDAY'S AGENDA

• British Gas owner Centrica updates the market on trading. The energy giant was lambasted by consumer groups in February after smashing its profits record despite lifting gas and electricity prices. But analysts have warned utility bills will rise again to prevent losses at BG's residential arm as gas prices remain close to record highs.

• April's producer prices - factory-gate inflation - are expected to fuel fears over rising costs. The Bank of England's monetary policy committee will have had a sneak peak at the data at yesterday's rates meeting. The figures are likely to have contributed to the decision to leave borrowing costs on hold.

• HSBC issues a trading statement. Last year, a strong performance in Asia offset rising bad debts in the US and credit crunch-related writedowns, but chairman Stephen Green warned that 2008 could prove challenging.

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