Market report: Wednesday close

By Mickey Clark for MailOnline
Updated:

 

Forget any ideas that shares in the High Street banks have been oversold, even though their value has more than halved since the start of last year.

Mickey Clark

Mickey Clark, Evening Standard

That is the advice of Credit Suisse, which says it is too early to start buying them and warns there is still scope for an increase in mortgage risk weights. The broker has raised Royal Bank of Scotland, 3¼p lighter at 238p, from underperform to neutral but cut its target from 350p to 285p. It has downgraded Lloyds TSB, off 8¾p at 384¾p, from neutral to underperform and slashed its target from 460p to 345p, claiming the rating looks expensive.

It says Lloyds' earnings are more exposed to an economic downturn than most other banks because of its UK retail arm and corporate and commercial property exposure. It adds that Lloyds' relative advantage over the sector has also been reduced following rights issues by other banks and the Bank of England pumping money into the system in the shape of cheap loans.

Credit Suisse sees RBS's capital ratios faring better than average if a downturn occurs, with its tangible net asset value protected.

It continues to rate Alliance & Leicester, 5½p cheaper at 421¾p, and HBOS, 2p down at 431p, at underperform and has lowered its price targets from 440p to 390p and 570p to 415p respectively. Barclays, down 3½p at 387¼p, is rated neutral, with its target dropped from 570p to 415p.

Shares generally posted modest gains, with investors taking their lead from a positive performance by Wall Street overnight. The FTSE 100 index closed 11.1 points up at 6069.6 while on Wall Street this afternoon the Dow gained 11.7 to 12,560.1.

Supermarkets group Wm Morrison was up 5¾p to 291p after Credit Suisse moved from neutral to outperform and tweaked its target 20p higher to 340p on the back of profits from the manufacturing division.

A further softening of the oil price was good news for British Airways, up 3½p at 218¼p, with its huge fuel bill. The move also boosted easyJet, 17¼p ahead at 291¾p, and Ryanair, 10 cents better at €2.82. But the drop in the crude price below $127 a barrel had the opposite effect on the big oil companies. BP fell 11p to 605½p and Cairn 56p to 3315p.

Keep an eye on Aberdeen Asset Management, up 3¾p at 136p. Hedge fund operator Martin 'The Rottweiler' Hughes has increased his stake. His Tosca fund vehicle has splashed out £20.4m on a further 15m shares, stretching his holding from 115.46m to 130.46m, or 18.21%.

Hughes has a reputation for targeting companies with unrealised value. He has an impressive track record, although his 17% stake in housebuilder Redrow has suffered, with the shares trading at a record low of 231¾p.

Friends Provident firmed 1.9p to 117.8p. Former fund manager David Rough has bought 25,000 shares at 115p. He is expected to be appointed a nonexecutive director of the life assurer soon.

Trading conditions remain tough at Woolworths, down ¼p at 10¾p, and are likely to continue like that throughout the rest of the year, says Panmure Gordon. It has downgraded the retailer from buy to hold and cut its target from 14½p to 12p. It has lowered its 2008-9 pre-tax profit forecast from £30m to £25m, against a consensus of £28m.

JPMorgan has downgraded FirstGroup, 5½p cheaper at 519½p, from overweight to neutral to reflect a dearer-than-expected debt refinancing plan. The broker said it sees more diluted delayed equity value growth and is worried that consensus estimates could be too high, leaving scope for more risk.

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TOMORROW'S AGENDA

• Struggling outdoor clothing specialist Blacks Leisure publishes full-year results. The owner of the Millets chain has issued two profit warnings after poor Christmas sales and the discovery of a black hole in the group's accounts. But analysts expect chief executive Neil Gillis to be more upbeat on recent trading as the wet weather boosted sales.

• Hedge fund manager Man Group is tipped to unveil a 50% leap in pre-tax profits to £1.9bn. The company is expected to attribute the jump in earnings to soaring performance fees, which it receives when its funds beat targets.

• Copper miner Antofagasta is expected to say higher metal prices and increased production are offsetting rocketing costs when it delivers first-quarter earnings. The group reported in April that production was up 8.2% in the three months, but warned over rapidly rising costs.

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