FTSE 100 close: Morgan Stanley upgrades BT

By Adrian Lowery
Updated: 12:01 EDT, 16 June 2009

BT Group is among the top gainers on the blue-chip index after a positive note from Morgan Stanley, which sees it upgrade the stock and increase its price target.

Market watcher: Eyes will be on inflation data.

The broker upgraded BT – 7.6p up at 102.5p - to 'overweight', for the first time in over four years. It says the management's focus on cash generation will see cashflow rise to £1.5bn pounds in 2013 from £1.15bn for 2010.

Morgan Stanley added that if cashflow stabilises at its 2014 estimated level, the sustainable dividend could double and the share price rise to 190p at an 8% dividend yield.

London shares generally stabilised after yesterday's falls. The FTSE 100 index was 2.6 points higher at 4,328.6. Wall Street was having a lacklustre monring, despite some positive economy and housing data: the Dow Jones was 2 points down at 8,610.2.

The index slid 2.6% yesterday and analysts arew warning that the rally may have been overdone and a global economic recovery may not be as imminent as previously thought.

In economic news, figures today revealed a lower than expected drop in the official measure of inflation - to 2.2% in May.

'We got far ahead of ourselves,' said David Buik, senior partner at BGC Partners. 'The enthusiasm for owning stocks has been over-exuberant and over-zealous. I wouldn't be at all surprised to see the Footsie end up in negative territory by the end of the day,' he said.

Tesco added to the upbeat mood after reporting a 'solid' first-quarter trading performance with like-for-like sales up 4.3%.

The figure was in line with recent trends and resulted in shares climbing 5.5p to 361.6p, a gain of 1.5%. Sainsbury's, which is due to issue a trading update tomorrow, was 3.5p higher at 331.75p.

Whitbread shares were 3p lower at 847.5p after it reported a deeper fall in like-for-like sales at its Premier Inn hotel business. The decline of 7.9% in the first quarter was offset by strong trading at Costa Coffee and a market-beating performance for its Beefeater pub restaurants arm.

Shares in outsourcing firm Serco Group were near the top of the FTSE 100 leaderboard with a gain of 8p to 403.75p, lifted by a UBS upgrade to 'buy' from 'neutral' with an increased target price of 450p, up from 365p.

UBS points out in a note that Serco shares have recovered strongly from lows of 349p reached in March 2009. It attributes the re-rating to the shares being oversold, a re-assuring operating trading update, a number of contract win announcements.

Banks were also on the risers' board, with Lloyds Banking Group continuing gains seen yesterday as it rose another 3.7%, or 2.5p to 69.3p. RBS added 0.2p to 38.1p while Barclays fell 1.75p to 277p. A number of miners were on the front foot after their battering yesterday, with Xstrata 10.5p higher at 716.5p and Vedanta Resources up 10p at 1494p.

Elsewhere, designer fashion chain Ted Baker fell 5.5p to 370p as it reported a worsening performance from its wholesale arm. However, its core retail arm has been faring better and it confirmed confidence of meeting full-year market forecasts.

Blue-chip rival Next remained static at 1489p after losses during early trading, while DSG International also stayed put at 25p. Argos owner Home Retail Group moved 4.5p higher at 262.25p.

TOMORROW'S AGENDA

• J Sainsbury posted full-year profits of £543m in April, up 11% on the previous year, and said it was set on a path of further growth. Investors will discover whether the supermarket group has achieved its aims when it posts its first-quarter trading update. Analysts at Nomura are bearish and recommend investors to sell, saying it doubts whether Sainsbury's will be a 'long-term growth story', adding: 'Sainsbury remains behind its peers in grasping food and financial services opportunities.'

• Despite sightings of green shoots in a number of economic indicators, May's unemployment figures should give a sharp reminder of recession. April's figures showed a rise of 57,100 - well below forecasts - but May's data are expected to be less positive.