UK/Euro Financial Market Daily Evening Briefing 08-08-2007

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London shares close up as insurers gain on RSA H1 results; NY higher

Leading shares closed up, just off session highs, encouraged by sharp gains on Wall Street after the central bank soothed credit market woes, with UK insurers making headway after strong H1 results from Royal & Sun Alliance.
   
At the close, the FTSE 100 index was up 85.1 points at 6,393.9, while the FTSE 250 was 219.8 higher at 11,455. Volume was firm with 3.877 bln shares having changed hands in 101,830 deals.
      
In the US, Wall Street rose sharply as investors were relieved that the Federal Reserve still predicts moderate economic growth, despite credit concerns and the market reacted warmly to solid results from Cisco Systems Inc.
   
By the London close, the Dow Jones was up 86.90 at 13,591.20, while the Nasdaq Composite added 44.33 to 2,605.93 and the S&P 500 index rose 15.50 at 1492.20.
         
Back in London, insurance stocks continued to enjoy a another day of prominent gains this time spurred on by solid results from Royal & Sun Alliance.
   
RSA shares took on 5.0 at 141.0 after the group reported a fall in first half operating profit, dropping to 403 mln stg from 416 mln stg this time last year but was well ahead of expectations.
    
Elsewhere in the sector, Friends Provident rose 4-3/4 pence to 197-1/4 after the group said that its underlying pretax profit for the first half came in at 264 mln stg, up from 247 mln stg in the same period last year, while UK life and pensions sales rose 12 pct to 2.257 bln stg.
   
Friends also said that the proposed merger with Resolution, up 5 at 669, would "enhance growth prospects and deliver shareholder value".  Panmure Gordon maintained its 'hold' stance on Friends.
   
And Standard Life, which rose yesterday following strong sales figures, made a further gain of 15 pence to 341, amid further positive broker comment and target adjustments at Deutsche Bank.
   
Meanwhile, the Norwich Union owner Aviva rallied with fellow insurers, up 25 at 705-1/2 despite rumours that it is expected to report a decline in profit tomorrow, hindered by the impact of heavy floods that struck South Yorkshire in June.
   
Staying in with financials, Alliance & Leicester rose 63 to 1,107 amid rumours National Australia Bank was running the rule over its UK counterpart. Dealers said NAB has been searching for a merger partner for at leat 10 years with Northern Rock and Bradford & Bingley also seen as potential targets.
   
Back with earnings news ITV was 4.0 higher at 109.7 as the group said revenues at its flagship ITV1 channel would likely rise in the third quarter as the UK TV ad market returns to growth.

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Unveiling a steep fall in first-half profits, ITV said net advertising revenues at ITV1 would likely rise by 1 pct in the third quarter of 2007, with ad sales across all of its digital and terrestrial channels up 4 pct.  Citigroup said ITV's H1 profitability was slightly better than it had expected.
   
Positive broker comment gave Scottish & Newcastle a boost, up 7-1/2 to 593 after Dresdner Kleinwort upped its recommendation on the brewer to 'buy' from 'add' following yesterday's results.
   
The company said first half pretax profit increased 5.5 pct to 191 mln stg, while the company was blown off course by severe weather conditions in the UK and France.
       
Still on the upside, Man Group ticked up 24-1/2 to 565 after reporting that the net asset value of AHL Diversified Futures Ltd as at the close of business yesterday was 31.08 usd, down 0.19 pct from last week and up 13.5 pct over the last 12 months.
   
Elsewhere, Next added 15 at 1,927 after HSBC upgraded the group to 'neutral' from 'underweight' with a target of 1,960 pence versus 2,050. In a note this morning, HSBC said that the share price had already factored in the trading impact of a wet summer. It added that aggressive share buyback activity by the board implies internal confidence.
   
Turning to the downside, technology company Smiths Group ended the day as the top Footsie faller, down 29 at 1,008 after the group said it expects its pretax profit for the year ended July 31 to come in at around 340 mln stg, around 7 pct up on last year's figure.
   
In a trading statement the company put the likely increase down to lower interest expenses and improved pensions financing.
   
Analysts at Numis Securities today downgraded Smiths' full year guidance by around 4 pct as a result of this morning's trading statement, and described the firm's outlook as "fairly gloomy".
   
"With more than 50 pct of sales in the US, the dollar will continue to drag on underlying growth in 2008. We are likely to reduce our 2008 EPS by 5 pct to around 70 pence," wrote Numis analysts in a note on the company this morning.
   
Elsewhere, Severn Trent gave away 26 to 1,336, following a statement on the effect on its numbers of the recent floods, with Citigroup repeating its 'hold' stance and 1,370 pence price target. In a statement this morning, Severn Trent said it expects the gross cost of dealing with recent floods to be in the range of 25-35 mln stg.
   
In reaction, Citigroup said that the net cost of the flooding to SVT currently looks like 15 mln stg. Whilst not insignificant, the broker feels this amount must be put into the context of SVT's 3.2 bln stg market capitalisation, which is less than 0.5 pct of value.

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Moving onto the second line, insurers and asset managers dominated the leader board in line with their more senior peers, with F&C up almost 15 pct - or 27-1/2 at 217-1/2 and Admiral up 87-1/2 at 940.
   
Meanwhile, Aquarius Platinum rose 108 to 1,433 after the group reported record production and net profit for the full year and said it is targeting a further 15 pct increase in production for the coming financial year.
       
M&A activity pushed Emap 28-1/2 higher at 867-1/2 after the Telegraph reported that Guardian Media Group and private equity firm Apax Partners are in talks to launch a 2 bln stg bid for the group. Bridgewell Securities reiterated its 'overweight' stance on the group.
   
Broker-generated news also helped Rentokil Initial, rising 9-3/4 to 167, after Merrill Lynch upped its stance on the group to 'buy' from 'neutral' and maintained its 174 pence target but said this could rise as high as 195 pence in a best-case scenario. The broker said that a 5 pct dividend yield may translate into a potential return of 17 pct in a year.
   
Also making gains were Carphone Warehouse adding 11 to 374-3/4, on read -across following Virgin Media's delay of its auction and lacklustre results.
     
Looking at the 250 downside, FKI was a notable faller, down 6 at 100-3/4 after the group said talks for its acquisition have ceased and that it is no longer in the offer period.
   
On May 31, the UK engineering group had said it was approached with an offer of around 130 pence a share. The company did not specify the identity of its potential suitor.
   
Finally in economic news today, the market reacted impassively to suggestions from the BoE that interest rates will rise to 6.00 pct from 5.75 pct currently by the end of the year, as the market expects.
   
In its quarterly Inflation Report, the BoE said the annual rate of CPI inflation will only fall back towards the 2.0 pct target in two years time if rates rise once more in the next few months.

Diary of Events

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UK Small Cap Report

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Paris shares end sharply up on bargain-hunting as Fed boosts Wall St

The CAC-40 index ended up 128.89 points or 2.29 pct at 5,749.29, led by a surge in shares of Unibail-Rodamco, Accor, STMicroelectronics and Hermes International. 37 CAC-40 stocks ended higher and three lower.
   
Unibail-Rodamco led CAC-40 gains, adding 12.12 or 7.22 pct at 180.02, recovering from recent losses and Accor climbed 3.40 or 5.81 pct erasing losses over the past week.
   
STMicroelectronics climbed 0.70 or 5.70 pct at 12.99 after news of a major partnership with its biggest client, Nokia, for 3G phone chipsets.
   
WestLB Matthias Grossman said the deal removes uncertainty about STMicro's future: "there was always a fear in the market that StMicro could lose its good relationship with Nokia as regards 3G development as Texas Instruments has a comparable offering." In a conference call late today Tommy Uhari, head of STMicro's Mobile, Multimedia & Communications business, said demand for 3G will be very strong in the second half of this year.
   
Total shares closed up 1.55 or 2.85 pct at 55.95 in heavy volume after the US Energy Information Administration said crude stocks fell by 4.1 mln barrels in the week to August 3 while gasoline inventories declined by 1.7 mln barrels.
      
On the second line, Hermes International shares jumped 8.89 or 12.52 pct at 79.92 as reassuring news on the US economy helped it reverse some of the heavy decline in the past two months, although the shares remain down over 15 pct since January.
      
Clarins added 4.18 or 7.51 pct at 59.84. AXA rose 1.01 or 3.58 pct at 96.43 ahead of tomorrow's first half results.
   
A local dealer pointed out that ING Groep's strong insurance results were providing a boost, while a London trader pointed out the stocks attractive price. "Axa has been looking cheap after coming off nearly 20 pct since May highs," he explained.
   
Shares in Zodiac rose 2.53 or 4.88 pct after SG Securities said the recent decline in the aerospace components maker's share price has been exaggerated in the light of a "favourable business context".
   
Zodiac shares have fallen 10 pct in the last three months and have lost 7 pct compared to their key sector rivals, an exaggerated drop even in the light of the weakening of the dollar, SG analysts said in a note to clients, keeping a 'Buy' recommendation.
   
Soitec shares soared 1.75 or 13.94 pct at 14.30 in the wake of a report in Taiwan that Advanced Micro Devices Inc will use the French company's silicon-on-insulator components in its next-generation Fusion processor.
   
On the downside, a number of stocks were hit by profit-taking after yesterday's strong gains. Air France-KLM slipped back 1.12 or 3.36 pct at 32.22, while Dexia shed 0.14 at 21.07.

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German shares close higher helped by bargain-hunting in financial stocks

The DAX was up 92.28 points or 1.23 pct at 7,605.94, having traded between 7,531.71 and 7,614.24. The MDAX added 146.62 points, or 1.42 pct, to 10,471.87, while the TecDAX added 26.89 points or 3.00 pct at 922.25. DAX futures were up 45.50 points or 0.60 pct at 7,545.50, while bund futures lost 0.54 or 0.48 pct to 112.05 points.
   
Allianz was up 3.36 eur or 2.13 pct at 161.36 and Munich Re added 1.99 eur or 1.56 pct at 129.30, while Deutsche Bank gained 1.34 or 1.32 pct at 102.64. Infineon was among the top performers, adding 0.19 or 1.71 pct at 11.29.
   
Commerzbank was up 0.25 or 0.80 pct at 31.32 ahead of its second-quarter figures tomorrow, while Hypo Real Estate lost 0.39 or 0.92 pct at 42.10.
   
Bayer, up 2.97 or 5.80 pct at 54.22, led the chip chips a day after it published its consensus-beating second quarter results. WestLB upgraded its stance on Bayer to 'buy' from 'add' and pegged its target at 63.5 eur per share.
   
UBS also raised its price target to 72 eur from 70 and reiterated its 'buy' rating for similar reasons, and Deutsche Bank similarly reiterated its 'buy' rating while increasing its target to 65.00 per share from 63.00.
   
On the downside, Lufthansa was the worst performer. It lost 0.54 or 2.54 pct at 20.73. Volkswagen was down 1.41 or 1.00 pct at 139.46.
   
Deutsche Boerse added 2.83 or 3.46 pct at 84.58 after Citigroup raised it price target to 106 eur from 102.50 while reiterating its 'buy' rating.
   
Adidas was up 0.22 or 0.51 pct at 43.34 after it released second-quarter results which came in generally higher than market expectations.
   
DaimlerChrysler added 0.45 or 0.70 pct at 64.56. It was earlier on in the red as rumours emerged the company may not pay out a special dividend this year, which the market had generally anticipated after it announced the sale of its 80 pct stake in Chrysler.
   
Over on the MDAX, Fraport was the biggest gainer, adding 5.50 or 11.98 pct at 51.40.
   
IKB, a focus among investors in light of its exposure to the US sub-prime mortgage market, added 0.63 or 4.41 pct at 14.93. Investors appeared to welcome the resignation of chief financial officer Volker Doberanzke, although the bank has postponed releasing quarterly figures to Sept 28 that were originally scheduled to be publish on Aug 14.
   
German minister of economics Michael Glos also said he is in favour of selling the state's holding in IKB following the completion of the bank's financial restructuring.
   
Vossloh, down 4.86 or 5.67 pct at 80.80, was the biggest loser. WestLB initiated coverage of stock with a 'reduce' rating and a price target of 82 eur per share.
   
Rheinmetall lost 3.59 or 5.56 pct at 61.00 after the defence and automobile industry specialist released second-quarter figures that traders said were either largely in-line with or slightly better than analysts' expectations.
   
On the TecDAX-listed, Draegerwerk fell 2.87 or 4.84 pct at 56.47 while QSC added 0.62 or 15.20 pct at 4.70.

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Amsterdam shares close higher, boosted by ING on strong Q2 earnings

The AEX closed up 9.55 points or 1.83 pct at 530.98, after trading in the range 525.46-532.83. Government bonds traded lower, while the euro stood at 1.3804 usd versus 1.3761 usd late yesterday.
   
ING added 4.03 pct to 32.03 eur in high-volume trade, with more than 30 mln shares changing hands, after posting better-than-expected results for the second quarter, with strong results at its insurance business and announcements that it expects no material impact on full-year earnings from the current credit market turbulence driving buyers' interest.
   
Property stock Unibail-Rodamco added to yesterday's strong showing, gaining 7.22 pct to 180.02, while midcap peer Corio gained 5.36 pct to 54.80 eur, as the market re-evaluates property sector values.
   
Staffer Randstad put on 5.26 pct to 48.82 eur, mirroring progress made by staffing stocks across Europe on more positive momentum in the sector, after a sharp sell-off following Randstad's cautious outlook for the third quarter. Peers Vedior added 2.37 pct to 19.04 eur and USG People gained 2.07 pct to 27.08 eur.
   
ING's gains spread across the financials' sector, with Aegon adding 3.67 pct to 13.45 eur ahead of its second-quarter numbers, out tomorrow, while ABN Amro added 0.87 pct to 36.0 eur and Fortis closed marginally higher at 28.36 eur, up 0.18 pct.
   
Crucell led midcap risers, up 6.65 pct to 16.35 eur, with analysts' putting the spike down to one or more buyers covering short positions, saying there was no fundamental reason for such an increase.
   
Oil services group Fugro closed 4.85 pct up at 47.56 eur. The company is expected to publish higher first-half figures on Friday, with analysts looking for a more detailed full-year outlook than the one given at the beginning of the year.
   
Univar added 1.78 pct to 50.41 eur on news that the public offer for the Dutch chemicals distribution group from CVC Capital Partners is poised to proceed.
   
There were only two blue-chip decliners, with TomTom slipping 1.48 pct to 444.63 eur and DSM off 0.27 pct at 37.46 eur. Local issue Arcadis fell back from early strong gains, slipping 1.97 pct to 62.50 eur, after posting second-quarter sales growth that exceeded expectations, but issuing an outlook seen as conservative in the market.

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