British Airways climbs as FTSE ends the week on a high note

It may not seem the best time to buy airline shares at the moment, what with consumers and businesses both being squeezed hard by the recession. But shares in British Airways climbed 13.1p to 174p after analysts at RBS issued a buy note with a 300p price target.

Analyst Andrew Lobbenberg said:

"We remain resolute in our view that the present recessionary credit crunch is a good moment to buy network airlines, as were the midst of the Gulf War and the aftermath of the 11 September terror attacks. We see BA's woe magnified by the liberalisation of Heathrow-US routes. We see BA particularly acutely affected by the weak UK and US economies and the challenges of the financial services industry.

"We adjust our 2009 operating loss estimate from £143m to £221m, reflecting increased redundancy costs (around £35m incremental), the impact of February's winter snap (around £20m) and softening traffic (about £25m).
"[But] we continue to foresee BA being an early and volatile recovery stock.

"Three potential catalysts are significant. Corporate governance and pension issues remain obstacles to an imminent announcement regarding [a merger with Spain's] Iberia. However, the operational and strategic logic of the transaction remains, in our view. We believe the deal could come this calendar year. Anti-trust immunity with American Airlines is facing political opposition in the US, but we also expect approval this calendar year. BA is seeking £220m of cost savings. We see a strong commitment from the company to deliver on that goal."

Overall the market ended the week on a reasonably upbeat note, with US bank Citigroup following in the wake of JP Morgan Chase and Goldman Sachs in reporting satisfactory results. GE also calmed nerves with its figures. So with banks leading the way once more, the FTSE 100 closed 39.82 points higher at 4092.80. But David Buik at BGC Partners cautioned: "It feels as if we are being dragged up on a wing and prayer and momentum from the US." And with Wall Street more or less flat by the time London closed, the leading index had certainly come off its best levels.

Lloyds Banking Group was the biggest riser of the day, up 14.9p to 104.6p while Royal Bank of Scotland rose 4.1p to 32.7p and Barclays was 15p better at 227p.

Telecoms group BT bounced 7.9p to 91.6p after a positive note from Citigroup, hopes that it could resolve its massive pension deficit problem and talk of a possible multi-billion pound bond issue. Mobile group Vodafone rose 4.85p to 129.65p after Morgan Stanley repeated its overweight recommendation and 175p a share price target.

Tesco dipped 0.1p to 329.9p despite Merrill Lynch moving from neutral to buy ahead of the supermarket's results next week, which are expected to show it achieved around £1bn of sales a week and full year profits of more than £3bn.

A number of property groups were hit by downgrades from analysts at UBS. Hammerson slipped 1.75p to 299.75p, Great Portland Estates fell 9p to 274p and Land Securities lost 1p to 539p.

But one company in the sector to do well was St Modwen Properties, up 16p to 167p after an upbeat trading statement.

Regional newspaper groups were lifted by hopes that the government was planning to introduce legislation which would pave the way for mergers between them. Daily Mail & General Trust added 42p to 316p, Trinity Mirror 17p to 63.75p and Johnston Press 1.75p to 14p. Analyst Alex DeGroote at Panmure Gordon said:

"It is being reported that a new piece of legislation may be accelerated, with a view to loosening current regulations governing UK media ownership rules. This would apply to commercial radio or TV and regional newspapers. This should happen before the general election (i.e. before next Spring). Whilst there are potentially many outcomes, the key point is that industry consolidation would be a net positive for the equity value of the remnants of the UK commercial media sector. As we have seen over the past 18 months, a combination of falling advertising (mainly classifieds), debt, increased competition and very poor sentiment have crushed equity value in names such as Johnston Press, ITV and Trinity Mirror. DMGT, to a lesser extent, has also suffered."

ITV ended 3p higher at 32.5p.

Elsewhere online gambling group PartyGaming edged up 0.25p to 231.25p while rival 888 was steady at 100p. Takeover talk continued to swirl around the sector, and in a note, KBC Peel Hunt commented:

"Ex-PartyGaming chief executive, Mitch Garber, is to head up Harrah's Entertainment online gaming operations. According to several industry web sites Harrah's is looking to develop an online presence ahead of possible legislation in the US to legalise internet gaming. Until this happens the group will focus on non-US clients and according to Gambling911 Harrah's is looking to work with an established online poker network. The company Garber knows best is clearly PartyGaming. Whoever Harrah's ultimately chooses could provide an insight to their true desires online. Pick an operator such as PartyGaming or 888 and this leaves these companies as potential acquisition targets. Pick a software provider such as Playtech and that would suggest that the US casino giant isn't interested in acquiring online businesses."

But financial advisor Hargreaves Lansdown fell 14.5p to 212.5p as chairman Stephen Lansdown sold £46m worth of shares at 205p each. He plans to use the cash on private projects, including funding a new stadium for Bristol City, the championship football club he also chairs.

Another share sale had the opposite result. Set top box maker Pace put on 11.25p to 151.25p as Dutch electronics group disposed of its 17% stake in the company at an average of 135p a share. Philips acquired the shares when it sold its set top box business to Pace a year ago. FinnCap said:

"Clearly this is good news as we did not see Philips as a long-term holder of the stock. We remain positive on Pace as the underlying trends in digital TV continue to propel the company forward."