UK/Euro Financial Market Daily Evening Briefing 19-06-2007

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London shares close lower; NY weak after mixed housing data; Tesco down

Leading shares closed lower as Wall Street remained weaker after investors received mixed news on US housing data, with Tesco remaining down in the blue chips following disappointing first-quarter UK sales growth.
   
By close, the FTSE 100 was 53.5 points lower at 6,650.2 and off an earlier high of 6,721.4, while the FTSE 250 index was down 130.3 at 11,817.2.  Volume was light with 1.7 bln shares trading in 370,546 deals.
   
Across the pond, Wall Street was lower after mixed housing data and weaker-than-expected quarterly results from consumer electronics retailer Best Buy.
   
Investors received mixed news on the housing sector after a disappointing survey yesterday that suggested market conditions were continuing to deteriorate.
   
The number of new building permits issued in May, a gauge of future activity, rose 3.0 pct to a 1.501 mln unit rate, the Commerce Department reported. Economists were expecting a much smaller increase to 1.486 mln.
   
But housing starts, or the number of new homes on which builders have started work, declined 2.1 pct in May to a 1.474 mln unit annual rate, broadly in line with expectations. April housing starts were also revised lower.
   
By London's close, the Dow Jones Industrial Average index was 19.3 points lower at 13,593.7, while the tech-dominated Nasdaq lost 8.25 points at 2,618.35. The Standard & Poor's 500 index fell back 1.21 points to 1,529.85.
   
On the blue chip downside, Tesco was the worst performer, off 22-1/4 or 4.87 pct at 434-1/2, after releasing first-quarter sales which came in at the lower end of consensus but which left most brokers unfazed despite a backdrop of sluggish UK sales growth.
   
For the 13 weeks to May 26, UK like-for-like sales excluding petrol were up 4.7 pct, compared to analysts' expectations of 4.6-5.5 pct and growth of 5.8 pct in the fourth quarter of the previous financial year.
   
In reaction, Panmure Gordon reiterated its 'buy' advice and pointed out that events at J Sainsbury have shifted the focus back to property and also to what might happen if a substantial chunk of the market were to be debt-financed.
   
It said Tesco has the best property portfolio and, as the sector leader by a long way, should benefit from a softer margin environment.  The sales news from Tesco weighed on the sector with M&S down 17-1/2 at 670 and J Sainsbury off 2-1/2 at 581.

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Meanwhile, Cadbury Schweppes gave up earlier gains to trade 6 lower at 700-1/2 after confirming it is more likely to pursue an outright sale of its US soft drinks business than a demerger due to the level of interest shown in the division. The group said the sale process is now "actively underway".
   
Cadbury is understood to have received expressions of interest from several parties including two private equity consortia - one comprising Blackstone, KKR, and Lion Capital and another consisting of Bain Capital, Texas Pacific, and Thomas H Lee.
   
Waning bid talk took some of the wind out of Vodafone's sails after US telecommunications firm AT&T said it was not considering a bid for the British mobile phone operator. The shares fell 3.1 to 158.9.
   
Turning to the upside, Capita remained the top riser, up 12-1/2 at 746-1/2, after Citigroup upgraded its recommendation on the support services company to 'buy' from 'hold', and upped the target to 805 pence from 725.
   
Compass Group also benefited from positive broker comment, rising 0-1/2 to 369-1/2 as Merrill Lynch upped its stance to 'buy' from 'neutral' noting the company is putting its problems behind it and is on track to deliver sustained growth and shareholder value creation over the coming years.
   
In M&A news, Imperial Chemical Industries' shares were up 4-1/2 pence at 639, following a report in the Times which states ICI's pension liabilities are unlikely to put Akzo Nobel off bidding because the Dutch company's credit rating is superior to ICI's.
   
On the midcap downside, shares in Warner Estate Holdings were lower, down 32 pence at 722, on profit-taking after its results.
   
Earlier the property investment company reported a 17 pct rise in its full-year net asset value after a REIT conversion charge, adding adjusted pretax profit rose 14 pct on increased performance fees following the renegotiation of asset management agreements.
   
Warner said net asset value rose to 774 pence from 660 pence last time and adjusted net asset value rose to 800 pence, both on an after-REIT conversion charge basis.
   
A broker downgrade saw shares in Biffa fall back 14 at 295-1/4 after Cazenove downgraded its stance on the UK waste group to 'in-line' from 'outperform'.
   
The broker is understood to think the market has oversold the shares based on concerns over weakness in its local collection business.

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Turning to the second line upside, HMV Group was the top riser, up 2-3/4 or 2.39 pct at 118, on speculation the firm could be closer to a disposal of its Japanese subsidiary.
   
Also in M&A news, Invensys took on 3-1/4 to 386 amid ongoing takeover talk and after Citigroup upgraded its stance to 'buy' from 'hold', with a raised target of 440 pence from 370.
   
Talk of a bid from Siemens has resurfaced at regular intervals since last October.
   
Positive broker comment also helped fuel shares in the midcaps, with WH Smith gaining 7 to 419-3/4 after Cazenove reiterated its 'outperform' stance on the group.

Diary of Events

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Paris shares close down as US shares drift; Thales up on Pentagon order

The CAC-40 index ended down 15.48 points or 0.25 pct at 6,071.67 on volume of 7 bln eur. 26 CAC-40 stocks closed down and 14 higher. On the Matif, July CAC-40 futures were trading down 14 points at 6,089.5.
   
Among individual stocks, Thales reacted strongly to reports of a 3.5 bln eur order from the US military to supply radios. The shares added 0.96 or 2.15 pct at 45.58.

However, Thales rejected a statement on the Pentagon's website which said the contract has been awarded, saying that at this stage there is "an enabling contract", which designates Thales as a potential supplier of tactical radios to the US army in a potential contract "estimated at several billion dollars over the next 10 years."
   
Contacted by Thomson Financial, a spokesman for Thales said a decision on the final contract could be forthcoming fairly rapidly, as the Pentagon statement said "the first deliveries are expected for 2008."
    
EADS added 0.14 or 0.58 pct amid a flurry or order announcements at the Paris Air Show. This morning EADS co-chief executive and Airbus head Louis Gallois said EADS is "in a better position than some expected a few months ago and even a few weeks ago".
   
This afternoon Airbus said US leasing company Intrepid Aviation Management LLC has placed the biggest order yet for its A330-200 freighter jet.
   
Privately owned Intrepid, based in Memphis, has ordered 20 of the aircraft, with deliveries starting in the first quarter of 2010.
   
On the downside, Carrefour  shedding 0.75 or 1.452 pct at 52.18. The group was affected by market disappointment with the news that UK giant Tesco's sales slowed in the first quarter.
   
Fellow French retailer Casino Guichard-Perrachon slipped 0.66 or 0.83 pct at 78.76.
   
Air France-KLM dropped 0.81 or 2.24 pct at 35.29 as it continued to see profit-taking after its entry into the CAC-40 yesterday.
   
Airport operator ADP, meanwhile, gave up 1.44 or 1.66 pct at 85.48 after reporting a drop in passenger numbers at Orly airport last month compared with a year earlier.
   
STMicroelectronics fell 0.20 or 1.37 pct at 14.35. CM-CIC Securities reiterated its 'reduce' stance, with a price target of 12.02 eur, advising caution on the stock due to the likelihood of further restructuring in Europe.
   
Renault added 2.20 or 1.9 pct at 118.79, continuing its spectacular surge this year. Merrill Lynch today placed the carmaker on its Europe 1 list and reiterated its target of 130 eur. Peugeot added 0.77 or 1.29 pct at 60.40.
   
Vivendi, up 0.25 or 0.80 pct at 31.61, was also lifted by a broker note, with Goldman Sachs upgrading the stock to 'buy' from 'neutral' and raising its price target to 36.6 eur from 31 eur. The broker noted the group's potential to return cash to shareholders if it sells assets or re-leverages its balance sheet.

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German shares close flat as downbeat ZEW offsets SAP, Bayer gains
     
The DAX was down 2.60 points or 0.05 pct at 8,033.52, having traded between 8,011.29 and 8,074.11. The MDAX lost 18.23 points or 0.16 pct to 11,108.14 points, while the TecDAX was down 0.09 points or 0.01 pct at 929.94 points. DAX futures were 9.00 or 0.11 pct higher at 8,126.00, while bund futures added 0.37 or 0.34 pct to 110.46.
   
Adidas lost 0.75 eur or 1.65 pct to 44.70 eur, ThyssenKrupp dropped 0.70 eur or 1.53 pt to 45.12 as investors cashed in profits.
   
MAN fell 0.124 eur or 1.13 pct to 108.51 eur on profit-taking after the company today said it still sees its return on sales target coming in above 8.5 pct for this year and holds to guidance that sales should increase by 13 pct.
   
Analyst Eggert Kuls at M.M. Warburg also pointed to profit-taking pulling down Linde, which traded 0.39 eur or 0.46 pct lower at 83.71 eur. Kuls said that investors were looking to lock in gains the stock had recently enjoyed.
   
On the upside, SAP rose 0.61 eur or 1.64 pct to 37.89 eur after Deutsche Bank issued a bullish broker note on the stock and as speculation emerged that the software manufacturer will post solid second quarter figures which are due out July 19.
   
Bayer lifted 0.63 eur or 1.12 pct to 56.68 eur after the pharmaceuticals and chemicals giant raised its earnings guidance for 2007 and 2009 on improved prospects for its HealthCare business.
       
Henkel added 0.40 eur or 1.02 pct to 39.80 eur as the stock benefited from WestLB raising its target to 44 eur per share after yesterday's successful 3-for-1 stock split.
   
Insurers were also a bright spot, with Munich Re shares rising 1.04 eur or 0.76 pct to 137.65 eur, continuing yesterday's gains prompted by a report that the insurance giant might distribute even more money to its shareholders than the currently planned 8 bln eur it is intending to give back by 2010. MDAX-listed peer Hannover Re gained 0.51 eur or 1.41 pct to 36.66 eur.
   
Allianz, added 0.99 eur or 0.57 pct to 175.05 eur after HSBC raise its target for shares in Germany's largest insurer to 209 eur per share from 183.
   
Infineon edged up 0.08 eur or 0.66 pct to 12.18 eur after Deutsche Bank raised its price target to 14 eur per share from 13.50, while maintaining its 'buy' rating on the chip maker.
   
Over on the MDAX, Stada led decliners, falling 1.20 eur or 2.55 pct to 45.83 eur. Bilfinger Berger eased 1.72 eur or 2.55 pct to 45.83 eur on news that the construction company may exit the US market, into which it has found it hard to make inroads.
       
At the other end of the index, Gagfah added 0.70 eur or 4.03 pct to 18.08 eur. Pfleiderer rose 0.30 eur or 1.24 pct to 24.40 eur after it released positive five-month figures and reaffirmed its 2007 guidance.

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Amsterdam shares close slightly lower, Stork soars on takeover talk news

The AEX closed 0.91 points or 0.17 pct lower at 550.36, after trading in the range 549.50-552.40. Government bonds traded higher while the euro stood at 1.3409 usd versus 1.3400 usd late yesterday.
   
Stork closed 9.33 pct higher at 46.15 eur, after saying it is in talks to be acquired by private equity group Candover in a deal that values the company at an all-cash price of 47 eur per share. The company said the talks are taking place with the consent and support of the full Supervisory Board, including the three members appointed by the Enterprise Chamber in Amsterdam in January of this year, and that shareholders Centaurus and Paulson have been informed. The company also said an update will be provided at the latest by August 1.
   
Unilever led blue chip decliners, off 1.42 pct at 22.20 eur, while TNT fell 0.76 pct to 32.60 eur. Earlier, the company said its TNT Post division has won a two year contract from Intergamma BV to distribute flyers for Intergamma's home improvement chains. No financial details were disclosed.
   
Ahold was off 0.71 pct at 9.80 eur. Shareholders today approved the company's planned sale of its US Foodservice unit, and a plan that will return 3 bln eur to shareholders, at the company's extraordinary general meeting in the Netherlands.
   
Semiconductor firm ASML dropped 0.54 pct to 20.25, while midcapper ASMI fell 1.27 pct to 19.50, after US-peer Microchip Technology issued a profit warning on the back of weak sales in the US and Europe, and on profit-taking as investors locked-in strong gains made last week.
  
Brewing giant Heineken was 0.52 pct off at 43.67 eur. Earlier, the company was given a price target upgrade to 44 eur from 39 at SNS Securities on the company's recent international deals and the strengthening of the US dollar.
   
Hagemeyer led blue chip gainers, adding 2.84 pct to 3.62 eur, while Akzo Nobel regained earlier losses, adding 0.25 pct to 61.09 eur. The company's Organon unit said it now has European Union-wide authorisation for its once-a-month contraceptive ring NuvaRing, having won approval in 13 new countries.
   
Among financials, Fortis gained 0.26 pct to 30.47 eur, while ING added 0.09 pct to 33.39 eur. The company said this morning it has purchased Turkey's Oyak Bank for 2.673 bln usd. Aegon added 0.46 pct to 15.18, while ABN Amro slipped 0.22 pct to 35.65 eur.
   
On the midcap, Fugro added 2.34 pct to 46.30 eur after announcing it has won a 3D seismic offshore contract worth 82 mln usd in Mexico.

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