Market report: Wednesday close

By Mickey Clark for MailOnline
Updated: 12:07 EDT, 3 January 2007

Another year of impressive growth is in prospect for Britain's high-flying grocers in 2007 and that, in turn, should be good news for stock market investors.

That appears to be the conclusion of the latest review of food retailers by broker Oriel Securities, which has singled out J Sainsbury, whose shares dipped 1p from record highs to trade at 414¾p, for particular attention in the New Year.

It has a confident buy rating on the shares and says that although they are trading at a 10% premium to rival Tesco, City forecasts remain on the conservative side for the current year.

Oriel says price-cutting among the supermarket chains has lost much of its impact as a marketing tool with food price inflation in plentiful supply. Overall, the outlook for the sector remains rosy.

In November, Sainsbury's reported a leap of 123% in half-year pre-tax profits to £194m with like-for-like sales, excluding fuel, up 6.2%, suggesting chief executive Justin King's recovery plan was delivering the goods.

Oriel says Sainsbury now has a bundle of cash it can invest or drop back through to the bottom line. The investment community as a whole remains massively underweight in the shares, which should continue to underpin the price.

In the meantime, the City waits to see what the Sainsbury family intends to do with its remaining stake of about 30%. Some say they may sell, paving the way for a bid. Rival Wm Morrison, closing up 2¼p at 262½p after reaching a record share price today, is also rated a buy by Oriel while Tesco, 1p higher at 411¼p, is seen as a hold.

There were those who had assumed the rest of the London market would be unable to extend yesterday's impressive gains that greeted the New Year.

Despite Wall Street remaining closed overnight and investors in Tokyo continuing to celebrate the New Year this morning, City investors kept nibbling away, awaiting the restart of trading in New York this afternoon. The Footsie closed up 8.1 points to 6319.0.

Among leading shares, Prudential put on 13½p to 724½p as it continued to benefit from New Year recommendations. Royal Bank of Scotland jumped 38p to 2074p It remains favourite pick of Swiss broker UBS, which also sees a further re-rating this year of Barclays, up 14½p at 760½p.

ICI ran into profit-taking, dropping 6½p to 454½p. Only yesterday, broker Dresdner Kleinwort said signs of a recovery in the US housing market should be positive for the Dulux paint maker. About 17% of the group's sales are now generated in the US.

The shares have been stimulated by talk of a takeover by its big Dutch rival, Crown paint supplier Akzo Nobel. DK says a takeover price of more than 600p a share is realistic.

Mining shares came off the boil, no doubt perturbed by fresh weakness in the dollar and a fall in metal prices. Xstrata dropped 152p to 2417p, Vedanta Resources shed 72p to 1158p and Rio Tinto lost 102p to 2653p.

Clean Diesel Technologies, a US company listed on Aim that retro-fits motor engines to reduce harmful emissions-fell 3p to 92p after raising $9.5m-4.8m) in a private placing of shares to fund working capital. They have been priced at $1.35 a pop, a discount of almost 30% to where the shares had been trading.

Aim-listed education and financial services software specialist Mondas was up 1¼p at 16p after warning 2006 profits would fall short of expectations.

Magazine publisher Future shaded ½p to 45p after Altium Securities downgraded from reduce to sell. The broker said it had been impressed by the way new chief executive Stevie Spring had approached the task of turning the company around, but warned the shakeup was still in its infancy.

Demand and pricing conditions within the consumer magazine market remained challenging and a switch to online could prove to be a drawn-out process, it added.