Market report: Tuesday close

By This Is Money
Updated: 12:49 EDT, 18 September 2007

While the Government waits to see if it's action to calm fears over Northern Rock has reassured savers, the markets clearly welcomed Alistair Darling's guarantee to underwrite deposits.

Northern Rock posted strong gains rising 23¼p to 306p and Alliance & Leicester shares shot up by almost 30%, rising 193p to 793p, after plunging by a third last night.

A&L, Britain's seventh largest bank, saw its market value plummet by £1.2bn yesterday after taking a hammering in late trading amid rumours that it could follow Northern Rock into crisis. It had closed down 286p at 587p.

However a sharp switch in sentiment overnight following the Chancellor Alistair Darling's announcement saw A&L's value rocket back up this morning. Spread betting form Cantor suggested that Alliance & Leicester's shares would end the day between 600p and 740p and questioned where the justification for yesterday's sudden downturn had come from.

Meanwhile, Dresdner Kleinwort raised A&L from a hold to a buy, stating: 'the stock is too cheap, even in this environment. We note that the company bought back 500,000 of its own shares yesterday, hardly the action of a company short of liquidity. Our target price is 840p.'

The market calmed after two days of turmoil following the Northern Rock problems, the FTSE 100 stood up 100.5 at 6283.3.

Elsewhere, the Evening Standard's Hugo Duncan writes,

The oil price soared to a fresh record today amid fears of a shortage of supplies this winter.

In New York, crude hit a peak of $81.24 a barrel, the first time it has risen above $81, while in London, Brent was up 24 cents at $77.22. Crude supplies are running at their lowest levels in eight months in the US, and analysts expect supplies to fall further after recent storms in the Gulf of Mexico crippled imports and damaged refineries.

However, the record price did little for oil companies in London today, with BP shares up 3p at 571½p and Royal Dutch Shell up 21p at 2035p.

Housebuilders were back in form as investors regained confidence in the sector following its recent bruising. Shares in Barratt Developments were up 12p to 781p while Persimmon slipped 5p to 941p. Among the midcap stocks, Taylor Wimpey rose 1¼p to 298½p and Redrow put on 2p to 440p. It was a much-needed bounce for the sector, which has been caught in the fallout from the crisis engulfing Northern Rock.

Shares in BAE Systems rose 11¾p to 482¼p after Credit Suisse lifted its price target on to 575p from 550p following news Saudi Arabia has agreed to buy 72 Eurofighter Typhoon jets. The deal is worth £4.4bn but will grow to an estimated £20bn over the lifetime of the aircraft. Credit Suisse said it was a 'significant win' for BAE and increased its earnings per share forecast for 2009 and 2010.

Shire Pharma rose 14p to 1169p after a bullish note from Goldman Sachs, which raised its rating to buy from neutral, saying the stock has fallen sharply on concerns over ADHD drug Vyvanse. However, Goldman reckons Shire has increased its share of the market to 30% from 28% since the launch of Vyvanse.

Maxjet, which flies passengers business-class across the Atlantic, today reported a 74% surge in first-half revenues to £27.3m after it carried 31,186 passengers, well up on the 20,862 it carried in the same period last year.

Analysts say the company is growing rapidly as travellers turn their backs on more expensive business-class travel on established airlines. However, the shares slipped ½p to 117½p today.

Gert Zonneveld of Panmure Gordon said: 'Maxjet has adopted many of the successful low-fare carrier practices. In a recent comparison, its fares were 60% to 75% below competing business class rates, with pricing largely in line with premium economy fares.'

Dealogic, which provides software to the investment banking industry, saw revenues grow 22% to $46.4m (£23m) in the first six months of the year, thanks to strong demand from the City, Wall Street and Asian markets. Profits were also up 22%, to $18.9m but the shares fell 2½p to 182½p.

Investors has chosen to play the waiting game in New York overnight. They were reluctant to open new positions ahead of today's decision on the next move in interest rates by the US Federal Reserve. Interest-rate futures were indicating a cut of at least a quarterpoint in the 5.25% prime rate.

They were also cautious ahead of this week's results from some of the leading investment banks, which should provide more detail about the impact of the subprime mortgage meltdown and subsequent volatility on financial markets.

Taking stock – sectors at a glance

BANKING AND FINANCE

Shares of Nordic bourse owner OMX were marked higher after rival Nasdaq indicated that it is prepared to raise its current cash-and-share offer of 25.5bn Swedish kronor (£1.9bn). Borse Dubai, the owner of the Dubai Stock Exchange, has offered 27.7bn kroner. Brokers expect Nasdaq to raise its bid to match that of Borse Dubai.

BUILDING AND PROPERTY

Shares in Workspace Group plumbed new depths yesterday after Merrill Lynch downgraded them from neutral to sell. In June, the company, which provides business accommodation for small and medium-sized businesses in London, reported a drop in full-year pre-tax profits from £149m to £112.5m.

CONSUMER

ABN Amro has issued a buy rating on Northern Foods, considering the ready-meals and biscuits manufacturer to be good value after the share price dropped by almost 10% in the past two trading sessions. Analysts at the bank believe the decline is primarily caused by fears over higher raw material prices.

ENGINEERING

Rexam's proposed acquisition of Russian beverage-cans maker Rostar has been blocked by the Russian Federal Antimonopoly Service (FAS). The company plans to renew talks with the FAS because it believes the acquisition would give it less than 15% of the Russian beverage-containers market.

HEALTH

Gyrus is looking a little under the weather after first-half results came in below forecasts. Profits at the medical devices business were hit by the weakness of the dollar and manufacturing inefficiencies following new product launches. Despite limited room for outperformance, KBC Peel Hunt has repeated its hold rating.

INDUSTRIALS

Management and unions at General Motors adjourned labour-dispute talks in Detroit early today. That left 73,000 GM workers with no new contract three days after their old one expired. GM is attempting to push through major staff restructuring proposals in a bid to stave off being eclipsed by Toyota and other rivals.

LEISURE

Evolution has retained a buy rating and 990p share price target for Mitchells & Butlers despite news of a growing hedging deficit. Earlier this year, the pubs operator held talks for a joint venture deal with R20 for its property portfolio. It plans to resurrect discussions once the current troubles in the debt markets stabilise.

MEDIA

Shares in Pace Micro dipped after Shore Capital initiated its coverage with a sell rating. The investment bank says that the digital TV technology developer's gross margins have fallen to under 20% in the past two years and its dependency on a small number of customers limits the business's growth potential.

NATURAL RESOURCES

Pangea Diamond Fields has valued the first parcel of 3000 carats from the Dimbi project in the Central African Republic at between $140 and $150 a carat, or as much as $450,000 (£225,000). Pangea hopes to sell the diamonds by early October but has yet to find a buyer. Further exploration has been suspended because of heavy rain. SG Securities has downgraded

RETAILING

Wm Morrison supermarkets from buy to sell ahead of half-year results on Thursday. The broker has also slashed its price target for the chain and possible takeover candidate from 361p to 248p. It says key catalysts are turning against Morrisons, and pricing pressures have returned.

SUPPORT SERVICES

Shareholders in Nord Anglia Education rubber-stamped the company's sale of its nursery division. The education and childcare specialist is selling Leapfrog Nurseries, which offers more than 9000 daycare places, to Busy Bees, part ofAustralia-based nursery operator ABC Learning Centres, for £31.2m.

TECHNOLOGY

Alterian chief executive David Eldridge has spent £9898 buying 7387 shares in the marketing software specialist at 134p each. That increases his stake in the company to 1.33m shares, or 3% of the shares in issue. Alterian shares are now trading well below their peak of 188½p, reached in April.

TELECOMS

Blue Oar Securities has begun coverage of Colt Telecomwith a buy rating. The broker says Colt remains well-positioned in data, adding that voice comparables should also improve from the fourth quarter onwards. It adds that Colt is also an attractive takeover opportunity, if Fidelity is willing to let go of its stake. Its rating is undemanding.

TRANSPORT

Aer Lingus has thrown out a second request from 29% shareholder Ryanair to convene an EGM to try to force the Irish flag carrier to retain its Shannon-Heathrow services. Aer Lingus has accused Ryanair of interfering with and frustrating its performance. Aer Lingus ends flights from Shannon to Heathrow in January.

UTILITIES

Bristol Water has asked industry regulator Ofwat for a £15 increase in its average domestic water bill for the next two years after experiencing a significant increase in costs. Bristol Water's current average annual domestic water bill is £141, which is 6% lower than the £150 set for other English and Welsh companies.