Market report: Monday close

By Mickey Clark for MailOnline
Updated: 12:29 EDT, 8 January 2007

At last, some positive news for British Airways, which has resolved a potentially damaging dispute with the trade unions and seen its share price celebrate by trading at record highs at one stage.

The group confirmed today it has reached agreement with the unions about tackling its £2.1bn pension deficit. The company is proposing to make a one-off contribution to the fund of £800m. subject to the acceptance of benefit changes.

The group will make a one-off employee saving of £400m and changes to future benefits, as a result of which the pension deficit will be reduced by more than half to £900m. The four unions involved are recommending the proposals and now plan to consult with their members.

BA chief executive Willie Walsh said: 'This is great news. Together with the New Airways Pension Scheme (Naps) Trustees and staff we have found a shared solution that helps secure the pension of our 35,500 Naps members and removes a major blocker to future investment in British Airways.'

The news has also come as a welcome relief the City. Broker Collins Stewart describes BA as a 'compelling buy', not least because it remains a prime bid target and the pension deal takes away a major hurdle.

Rival broker Citigroup also welcomes news of the settlement but describes talk of a takeover of BA as unwarranted. Foreign ownership laws covering airlines and any US/EU Open Skies deal would make such a takeover difficult to complete. Collins Stewart has a target of 570p on BA, while Citigroup has raised its from 500p to 553p and rates the shares a hold.

Broker ABN says the deal paves the way for BA rating upgrades, aircraft purchases and even a potential resumption of dividend payments. The price touched 567p before paring back its lead to trade 4¼p easier at 544½p.

Shares generally traded in a narrow range, with buyers gaining the upper hand. But the FTSE 100 index lost its lead to stand 25.9 lower at 6194.2.

Broker HSBC is warning the clamour for Real Estate Investment Trusts (Reits) could backfire on investors. Such is the demand that Reits are being pushed to unsustainable levels.

The value of Reits quoted in the Footsie 100 has now risen by 45% during the past year. Reits are tax-efficient investment vehicles set up to develop, manage and sell property assets. But they are now trading at a 5% premium to the spot net asset value, and with slender dividend yields of 2.4% are becoming unsustainable. HSBC has downgraded Land Securities, 73p lower at 2210p, from neutral to underweight, and Slough Estates, down 13½p at 770p, from overweight to neutral.

Takeover target Countrywide drifted 6½p to 531p amid fears the management buyout backed by venture capitalist-3i Group could hit the buffers if US fund manager Artisan, with around 7% of the shares, opposes the deal.

Financial Times and Penguin publisher Pearson fell 18½p to 762p after being downgraded by US broker Morgan Stanley from overweight to equalweight with a target of 800p. It warns the group's rating looks less attractive following a reasonable performance last year and other factors, including lower forecasts on the back of currency movements, the dilutive effect of its disposal of the Government Solutions business and the result of slower earnings growth further down the line.

MS says it prefers Reuters, up 1p at 439¼p, among the professional publishers and has repeated its overweight rating and 475p target. It also reckons Reed Elsevier, down 6p at 572p, looks like a viable alternative.

Sports Cafe, the subject of a bid approach in September, fell 7¼p to 27¼p after warning that fourth-quarter trading had fallen below expectations.

Hardy Oil & Gas stood out with a leap of 22p to 318¾p following the discovery of gas and condensate in the Fan-A-1 exploration well in the Cauvery Basin.

Free: Order company reports

Find out how companies mentioned in this story earn their profits by getting their official accounts for free. Find out more. Here are the most popular sectors:

• Oil, gas and energy
• Metals and mining
• Banks and debt companies
• SEARCH FOR A COMPANY

Mickey Clark's market-at-a-glance...

BANKING AND FINANCE

Deutsche Bank has named Barclays as its top pick in 2007. It has repeated its buy rating on the shares and raised its target from 750p to 850p, pointing out that Barclays was one of only three UK banks to outperform the European sector last year. The share price had been driven by significant earnings forecast upgrades.

BUILDING AND PROPERTY

Development Securities has sold its Cavendish Walk shopping centre in Liverpool for a profit of £7.5m. Collins Stewart says these proceeds and recent share placing ,which raised £23m, mean the group is in a strong financial position, enabling it to compete for large-scale developments. It remains a long-term buyer.

CONSUMER

The promise from JD Wetherspoon of 30 new pubs in 2007 has gone down well with UBS. Previous estimates had put the number at between 12 and 15 outlets. The broker says this shows the management is comfortable with the impact of the Scottish smoking ban. It remains a buyer with the target raised from 750p to 820p.

ENGINEERING

Peugeot's plant at Ryton, near Coventry, officially closes today. The controversial shutdown, which met with huge protests and calls from unions for a consumer boycott on Peugeot cars when it was announced last year, has led to the loss of 2300 jobs. The factory has built more than 1.3m Peugeot 206s since 1998.

HEALTH

Numis has repeated its buy rating on Ark Therapeutics following the positive news on phase three trials for its brain tumour treatment Cerepro. The broker says the positive safety data are critical for a drug of this nature, and it now remains to be seen if Cerepro gets early approval from the regulators.

INDUSTRIALS

Avon Rubber has begun clawing its way back from the bottom. Former Trade Minister Richard Needham, who succeeds Trevor Bonner as non-executive chairman later this month following Bonner's retirement, has bought an initial 12,500 shares - less than 1% of the company - in the tyremaker at 161½p, worth a total of £20,187.

LEISURE

Altium has raised its rating on restaurants operator Clapham House from add to buy and its target from 300p to 400p as the number of new sites being rolled out gains momentum. The scale of the company has "significantly increased" with the acquisition of the Tootsies and Dexter's chains and now has the highest growth in the sector.

MEDIA

Credit Suisse has trimmed its earnings forecast for ITV in the wake of a trading update from the broadcaster before Christmas. It expects the price to drift back below the 100p level in the short term, blaming the depressed advertising outlook, the cost of additional programming and fading prospects of a bid.

NATURAL RESOURCES

The prospects for oil and gas producer BG are splitting the City. Morgan Stanley has BG its top pick in the sector while Goldman Sachs has reiterated its sell recommendation, saying there is no upside to its valuation of 650p a share, although it admits the "key risk" to its view is the potential for a takeover approach.

RETAILING

Friday's profit warning from hobbies retailer Games Workshop has prompted Bridgewell to take another look at its numbers. Subsequently, it has slashed its forecast for the current year by 48% and for 2008 by 40%. Headline revenues continue to decline, but at a sharply reduced rate. It remains neutral despite Friday's big fall.

SUPPORT SERVICES

Panmure Gordon insists that the Royal Navy's attempts to reduce costs by £200m a year is already known and Portsmouth docks owner VT Group, has been active in identifying those savings. The closure of Portsmouth would be a worst-case scenario and the commissioning of two carriers is likely to be delayed, rather than cancelled.

TECHNOLOGY

AIM-listed interactive media and mobile entertainment specialist Yoo-Media is running trials in Ireland for Central Parking Systems, a provider of parking solutions, to trial its IVR system. This will enable motorists to telephone a number on the back of a penalty charge notice and authorise debit or credit card payments.

TELECOMS

Last week's warning on fourth-quarter profits from Motorola will hit other mobile phone makers, says Credit Suisse. More handsets are being sold, but they are at the cheaper end. It has cut its rating on Nokia from outperform to neutral with a near-term "trading sell" recommendation and reduced its target from e19 to e16.

TRANSPORT

London City Airport management has been brought in to operate Exeter International by Balfour Beatty, which has closed its deal to buy the fast-growing Devon airport for £60m. The airport, home of European short-haul specialist FlyBe, is expected to handle more than am passengers this year.

UTILITIES

A 16-month EU investigation into energy companies is due to be published this week. The probe is said to have found evidence of collusion and severe market failings. EU Commissioner Neelie Kroes also wants to use her powers to tackle government subsidies and anti-trust abuses resulting in lack of competition.