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Stock market report: Wednesday close

By Mickey Clark for MailOnline
Updated: 12:11 EDT, 28 January 2009

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Shares of Lloyds Banking Group continue to be overshadowed by the prospect of full nationalisation following its takeover of rival HBOS. But Citigroup reckons that is the last thing the Government wants, and clients should consider taking advantage of the cheaper share price.

Market watcher: Latest from the stock exchange

It has resumed coverage of the lender with a high-risk buy rating and a 120p target. The shares responded with a jump of 33.8p, or over 50%, to 100.9p. Citi believes the danger of dilution has been exaggerated.

'If the Government provided 100% of the required capital under our stress-test scenario, public ownership would increase from 43% to 57% and dilute the net asset value to 122p a share,' it says.

'Lloyds is currently trading at a 47% discount to this outcome, seemingly reflecting fears of full nationalisation, something we view as unnecessary and inconsistent with the stated aims of the Government.'

The broker concedes nationalisation remains a possibility, but remains adamant the risk is more than adequately discounted in the current valuation.

Banks generally were able to extend this week's rally. Barclays gained 17.7p to 107.7p and Royal Bank of Scotland added 5.6p to 21.3p. It was part of a global banking revival, supported by the US Government's plans to absorb toxic bank assets. Deutsche Bank led the charge in Europe while Mitsubishi UFJ Financial made gains in Japan. It also provided the peg for fresh gains this afternoon on Wall Street, where the Dow rose 106.65 to 8281.38.

The rest of the London market had already reacted positively to news that President Obama wants to boost America's economic stimulus package to almost $900bn (£630bn). Leading shares were squeezed higher, with the FTSE 100 index rising 100.79 points to 4295.2.

The life assurers continue to attract support, with Aviva jumping 39.7p to 333p, Prudential 43½p to 356p and Legal & General 6.8p to 67.7p.

Property developers Land Securities and British Land were chased up on news they are to sell shopping-centre stakes valued at more than £750m. LandSecs rose 16p to 650p and British Land 40½p to 471½p. Goldman Sachs indicated only yesterday that they would soon have to make disposals to reduce debts and cope with the recession.

Rio Tinto lost 34p to 1615p after conceding that it may have to turn to shareholders for extra funds to meet its goal of reducing debt by $10bn before the year-end. hot gossip says it will raise up to £8bn by way of a three-for-five issue at 900p. This may be underwritten by the China Development Bank, which could invest a further $20bn. Aluminium Corp of China paid 7000p a share (£7bn) for an 11% stake in Rio last year.

Dealers say rights issues by other mining companies are on the way. Xstrata, down 66½p at 18½p, may hit the market as early as tomorrow with an issue priced at 400p. It needs the money to repay debt of about £11bn. It also requires the backing of 35% shareholder Glencore International to get this one away. If Glencore does not back the issue, it faces substantial dilution of its holding. BHP Billiton climbed 58p to 1322p despite Citigroup dropping the shares from its buy list.

The market had to digest a clutch of fundraising exercises today. Durex maker SSL recovered an early fall to trade 17¾p better at 484p after Cazenove and Credit Suisse completed a bookbuilding exercise in 19.19m shares at 455p. The company hopes to raise £90m with which to expand.

Chaucer Holdings dipped 4¾p to 42¼p after unveiling plans to raise £75m through a placing of 17.2m shares and an open offer of 182.7m shares at 40p. The proceeds will be used to pay off debt.

Speculative buying drove Chloride up 22¾p to 146¾p. The group, which now specialises in secure power systems, was the subject of a 255p-a-share offer from Emerson in last June. Gossip suggests the US company may be ready to have another crack at Chloride.

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Tomorrow's agenda

Even though oil titan Royal Dutch Shell is tipped to report record earnings - estimated to be $30.7bn (£21.7bn) - for the year, it is the sharp drop-off in profits in the last quarter that will be in focus. Analysts forecast profits for the final three months of its financial year will plunge to £3bn after the price of crude dropped to $42 a barrel. The group is expected to rein in spending on new projects, and there are even rumours it could announce job cuts. Although Shell has its strategy outlook in March, analysts at UBS say they expect investors to receive guidance on production and the shareholder payout for the next quarter.

Drugs giant AstraZeneca posts fourth-quarter results, with currency movements expected to have eaten into earnings. Deutsche Bank forecasts sales will be up 1% at $8.2bn, with pre-tax profits coming in at about $2.4bn. Amid concerns over the impact on demand of the global recession, analysts are expecting cautious comments from the pharmaceuticals group on outlook.

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