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Yesterday's trading: Rail group's green light

By GEOFF FOSTER FOR MAILONLINE
Updated: 03:15 EDT, 6 May 2009

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Green lights flashed for National Express as it soared 74¾p, or 29% to 334¼p following reports the bus and rail group is close to saying cheerio to its troubled East Coast Rail franchise.

Market report: All the latest news from the London Stock Exchange

Speculation suggests the government will eventually move the franchise onto a management contract before re-letting it. Buyers clambered aboard in the hope that having the franchise scrapped will enable the group to then undertake a £400m rights issue which will help it operate more comfortably and within its banking covenants.

National Express won the battle to provide long-distance train services on the East Coast Mainline - London to Edinburgh - in August 2007 with a £1.4bn bid.

It fought off competition from rivals including FirstGroup, Arriva and a Virgin-Stagecoach consortium. But the recession has rendered the contract untenable. Industry sources believe an outline agreement between National Express and the Department of Transport to scrap the franchise has almost been reached - although Transport Minister Lord Adonis insisted yesterday deals will not be rewritten.

Broker Investec reckons the cost to National Express of withdrawal from the franchise is likely to be relatively light. Perversely, the main impact will be a reduction in losses. It estimates break-even this year on the East Coast but a £30m shortfall in 2010.

It says drawing a line under the East Coast risk makes an equity raising a lot more achievable and that in itself should lead to a re-rating of the shares.

British Airways climbed 17.9p, or 12%, to 165.9p on growing speculation its proposed merger with Iberia, the Spanish flag carrier, is about to be signed. BA and Iberia plan to create a single parent company, Topco, that would own the two airlines, allowing the carriers to operate largely independently.

It was blue skies all the way for the fabulous Footsie as its played catch up to buoyant overseas markets, which had traded higher on Bank Holiday Monday amid growing optimism that the worst of the recession has passed.

Drawing strength from Wall Street's overnight gain of 214 points, London shot 132 points higher by midday before closing 93.72 points better at a four-month high of 4,336.94. The FTSE 250 jumped 265.5 points to 7,836.83. Wall Street yesterday initially eased 30 points on profit-taking.

Heavyweight banks and mining stocks were in the vanguard of the advance. Banks reflectedhopes that the results on Thursday of regulatory stress tests on 19 US banks will prove that the need for extra capital is manageable.

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Meanwhile, miners made good progress on optimism Chinese demand for metals will improve the global economy improves.

Royal Bank of Scotland rose 4p to 48p and Lloyds Banking Group 11½p to 121.1p. Barclays gained 19p to 298p despite a Panmure Gordon sell recommendation. Analyst Sandy Chen's target price is 40p because he remains confident that the bank will have to raise fresh capital soon.

Cash-rich copper producer Vedanta Resources advanced 130p to 1260 ahead of tomorrow's results. Kazakhmys jumped 56½p to 646½p and Eurasian Natural Resources 56p to 676p.

Gossip that a bullish tome from a leading broking house will drop on fund managers' desks this morning helped car parts group GKN accelerate 18½p to 137½p. Buying on recovery hopes lifted Cookson 3p to 26p.

Housebuilder Taylor Wimpey erected a 5¾p gain to 50p on hearing that ratings agency Fitch had upgraded its long-term issuer default rating to positive from negative. Plumbing giant Wolseley soared 127p to 1349p after Bank of America/Merrill Lynch upgraded to overweight.

Telecity, which provides network independent data centres, put on 24½p to 290p following a bullish trading update. The first four months of the year has seen strong trading and revenue growth.

A small flurry of buying in a thin market following an upbeat trading statement helped British warehousing and distribution group NWF rise 12p to 95½p. Full year results are expected to be 'significantly ahead' of market expectations after a strong first-half performance.

Almost 17m Central China Goldfields were traded and the close was ½p dearer at 3⅛p. Buyers were alerted by news it has signed a contract with the mining arm of CITIC Group, a Chinese government investment company, to develop its Dong Mao Huo gold mine in Northern China.

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