UK/Euro Financial Market Daily Evening Briefing 19-12-2007

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London shares close higher; Northern Rock top riser as SRM lifts stake

At the end of play, the FTSE 100 index was up 5.2 points at 6,284.5, off a low of 6,251.8, with the FTSE 250 index up 44.7 at 10,231.9. Volume was low with 2.11 bln shares changing hands in 634,518 deals.

In the US, stocks fell modestly as investors were disappointed by Morgan Stanley's larger-than-expected quarterly loss, but were cheered by China's 5 bln usd investment in the Wall Street bank. By the London close, the Dow Jones industrial average lost 27.5 at 13,205.0.

Broader stock indicators were also lower. The Standard & Poor's 500 index fell 2.30 to 1,452.7, while the Nasdaq composite index lost 0.12 at 2,596.91. Northern Rock topped the leaderboard, 4.7 pence higher at 90.7 after SRM Global Master, the hedge fund seeking to stop the auction of the stricken UK mortgage bank, further raised its stake to 9.74 pct from 9.51 pct.

The bank was also in the spotlight after a press report this morning that Bradford & Bingley had approached Northern Rock about buying some of its assets, although this was later denied by B&B.

A fresh rise in crude oil prices helped fuel Royal Dutch Shell's 47 pence gain to 2,004, bolstered further by market speculation that it is set to agree a strategic partnership with China National Petroleum Corp (CNPC) Sector peer Tullow Oil was 4-1/2 higher at 650 as Credit Suisse upped its target to 700 pence from 669 pence in a sector review.

Elsewhere, news that the Bank of England rate setters voted unanimously to cut interest rates a quarter point to 5.50 pct helped buoy the housebuilders on anticipation the BoE will cut rates further.

Persimmon was up 19 at 788, Taylor Wimpey gained 3-3/4 at 199-3/4 and Barratt Developments was 8 higher at 447. A broker upgrade provided the catalyst for shares in Rexam, 9 pence ahead at 396, with Credit Suisse upgrading its stance on the company to 'outperform' from 'neutral', while cutting its target to 530 pence from 600.

The broker said the group makes an interesting investment case given its defensive growth characteristics, a 2007 dividend yield of 5.2 pct, and the prospect of significant capital appreciation in the course of 2008 as the group's growth engine starts to deliver.

On the downside, miner Anglo American was down 65 at 2,919 after HSBC trimmed its target to 3,400 pence from 3,500. Elsewhere, a broker downgrade saw shares in Intercontinental Hotels give up 20 pence at 877.

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Earlier, Morgan Stanley cut its rating on the group to 'equal-weight' from 'overweight' and reduced its target to 980 pence from 1,100 pence, saying that the group's US revenue-per-available-room growth is slowing at a faster pace than it had previously thought.

In the banking sector, Barclays lost 10 at 499 after Goldman Sachs downgraded the group to 'sell' from 'neutral' after the broker reshuffled its ratings on European banks. Sector peer HBOS dropped 9 to 727 as it to was downgraded by Goldman Sachs, to 'neutral' from 'buy'.

Turning to the midcaps, leaping to the top of the 250 leaderboard was Sports Direct, up 16-3/4 pence at 101, after reporting as expected poor first-half figures and on news it has no current plans to take company private, with Merrill Lynch remaining cautious.

Abbot Group jumped 13.62 pct higher, or 45-1/2 pence to 379-1/2 following news it has agreed to a 390 pence a share all-cash takeover bid from US private equity firm First Reserve Corp, valuing the oilfield services company at about 906 mln stg.

Also making headway was UK price comparison website Moneysupermarket.com up 9 at 139-1/4, after saying in a trading update that it expects full-year revenue to be no less than 160.9 mln stg, with internet revenues expected to grow in excess of 60 pct in the year.

Shares in Biffa also pushed higher, up 20-3/4 at 338-1/2, after the waste company said it had received a revised takeover proposal on Dec 7 from Montagu Private Equity and Hg Pooled Management offering 350 pence per share in cash, and that it would be ready to recommend an offer at this level.

In reaction, Seymour Pierce said that this offer values Biffa at 24.8 times March 2007 earnings and 23.5 times its forecast earnings per share for March 2008 and although it may appear generous, it is not enough.

Still on the upside, National Express added 47 to 1,152, after JP Morgan upgraded the company to 'neutral' from 'underweight', while giving it a 1,173 pence target, citing earnings upgrades, new cost efficiency schemes, and relative underperformance.

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On the downside, IMI was off 27-1/4 at 387-1/4, after the UK engineer warned its 2008 showing could suffer as an investigation into irregular payments by one of its units continues, while saying its trading performance for the year ending Dec 31, 2007 would be in line with its expectations.

Keller Group dropped 60-1/2 lower to 640-1/4 ahead of its full-year trading update tomorrow. Finally, John Wood Group gave away 11-3/4 to 428 after Credit Suisse downgraded its rating on the oil services company to 'neutral' from 'outperform'.

UK Diary of Event:
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UK Small Cap Report:
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Paris shares close down, tracking US; Trichet dampens rate cut hopes

The CAC-40 index ended down 11.95 points or 0.22 pct at 5,497.42. The SBF-120 was off 10.07 or 0.25 pct at 3,975.23. On the Matif, December CAC-40 futures were trading at 5,522.50. The euro was quoted at 1.4343 usd compared to 1.4397 usd late yesterday.
 
Societe Generale shed 1.05 or 1.06 pct at 98.06, BNP Paribas fell 0.19 or 0.26 pct at 73.07 and Credit Agricole was down 0.14 or 0.60 pct at 23.02. Dexia dropped 0.25 or 1.45 pct at 17.05, after strong gains yesterday.

Outside the CAC-40, Natixis was a heavy loser, falling 0.46 or 3.38 pct at 13.14, after a downgrade to 'sell' from 'neutral' at Goldman Sachs. The US broker also added Natixis to its 'conviction sell' list, alongside Barclays, saying headwinds seem unlikely to abate for capital markets-driven banks.

In the auto sector, Peugeot fell 1.21 or 2.27 pct at 52.04 while Renault shed 1.10 or 1.16 pct at 93.90, and Valeo slumped 1.07 or 3.60 pct at 28.63. Investors are worried that an economic slowdown might dampen consumer appetite for large expenses, such as cars.

EADS was down 0.29 or 1.29 pct at 22.14 after naming the preferred bidders selected for the Airbus plant divestment programme that forms part of its Power8 restructuring. Airbus is to sell its UK wing factory at Filton to GKN outright and plans to spin the French and German plants off as joint ventures in which it will retain minority stakes.

The transactions are expected to be closed in the summer of 2008. EADS said the Airbus plants targeted for divestment employ a total of 7,400 employees, and represent 1.4 bln eur of Airbus cost base in 2007.

Air Liquide ended up 0.99 or 1.01 pct at 99.12, finding support from a note from broker SG Securities which said the company remains confident about its 2007-2011 financial targets, and with news of a 15-year gas supply contract with ArcelorMittal underpinning gains.

ArcelorMittal was up 0.57 or 1.18 pct at 48.91 after announcing it aims to supply 75 pct of the iron ore for its steel making from its own mines by 2012 and 90 pct by 2018 up from 47 pct of at present. The company's head of mining strategy Malay Mukherjee said in an interview with Les Echos the group wants to build up its presence in the steel tube market and move to the number three position, from number five at present.

ArcelorMittal has already been cited as a potential buyer for tubemaker Vallourec, alongside Russian billionaire Alisher Usmanov and energy group Gazprom. "You can interpret this as meaning either ArcelorMittal is eyeing Vallourec, or it sees clear potential in the seamless tube market, and either way that's good for Vallourec shares," a local dealer said.

Vallourec ended down 0.80 or 0.37 pct at 24.39. Danone headed CAC-40 gainers, up 0.77 or 1.33 pct at 58.86 after two consecutive days of losses. Capgemini added 0.43 or 1.11 pct at 39.20, with dealers pointing to news this morning the group is ahead of schedule in its offshoring programme.

Kaufman & Broad shares were punished, ending down 1.96 or 6.16 pct at 29.84 after the group reported lower-than-expected full-year sales and net profit this morning.

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German shares close slightly lower as investors digest macroeconomic news

The DAX closed 13.42 points or 0.17 pct lower at 7,837.32, after trading between 7,777.40 and 7,876.59. The MDAX lost 54.35 points or 0.56 pct to 9,568.94, while the TecDAX was 0.39 points or 0.04 pct higher at 947.69.

DAX futures declined 26.50 or 0.34 pct to 7,852.00, while bund futures retreated 0.03 or 0.03 pct to 113.24. The euro was trading at 1.4347 usd, against 1.4381 usd in afternoon trade. Leading blue chips higher Bayer added 1.08 eur or 1.83 pct to 60.11, while Thyssenkrupp gained 0.55 eur or 1.50 pct to 37.11.

Infineon increased 0.12 eur or 1.49 pct to 8.15 as traders said the stock was reversing recent losses and was benefiting from reports that underperformance of semiconductor makers stocks versus hardware manufacturers will correct in the coming year.

Siemens rose 0.96 eur or 0.93 pct to 104.53 on news that it won an order worth more than 150 mln eur from TransCanada Corp to supply the Keystone Pipeline project with electrical equipment, electrical power supply and pumping equipment.

On the other end of the DAX, Henkel was down 0.66 eur or 1.72 pct at 37.80 while Continental slipped 1.42 eur or 1.66 pct to 84.19. RWE dropped 1.57 eur or 1.65 pct to 93.70. Over on the MDAX, SGL Carbon gained 1.25 eur or 3.55 pct to 36.47, as the top performer on the index.

Lanxess was up 0.55 eur or 1.74 pct at 32.07 after Deutsche Bank raised its price target to 36 eur per share from 35 and reiterated it 'hold' rating saying that its planned purchase of a 70 pct stake in Petroflex and an increase in its dividend payout should help boost its share price.

At the other end, Arcandor lost 0.94 eur or 5.61 pct to 15.83, after the company posted third-quarter results yesterday. TecDAX-listed Kontron was the strongest performer on the index, up 0.52 eur or 4.29 pct at 12.64, while Ersol Solar lost 2.60 eur or 3.63 pct to 69.00.

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Amsterdam shares close flat, as banks, recruiters fall

The AEX closed 0.09 points, or 0.02 pct, lower at 502.63, after opening at 504.46 and trading in the range 499.00-505.85. Government bonds traded mixed, while the euro stood at 1.4390 usd versus 1.4375 usd late yesterday.

Staffing group Randstad led decliners, off 3.69 pct at 24.83 eur, with ongoing fears of a US recession causing investors to seek less cyclical stocks. Vedior fell 2.01 pct to 16.55 eur while midcap peer USG People closed 0.97 pct lower at 18.39 eur.

Financials were also pushed lower, with ING off 1.44 pct at 26.03 eur, Aegon down 1.35 pct at 11.68 eur and Fortis slipping 1.01 pct to 17.60 eur. Brewer Heineken fell 0.78 pct to 44.31 eur, on a read-through from InBev's slightly negative comments on the Belgian beer market, due to a bad summer and higher raw materials costs, in a newspaper interview with an InBev director.

TomTom ended the day leading blue chip gainers, up 3.89 pct at 51.55 eur, aided by yesterday's figures from Best Buy Co., the US's largest electronics retailer, which showed forecast-beating third-quarter earnings, saying sales of personal navigation devices and video game consoles fuelled the gains.

Also in the US, market researcher NPD Group said navigation systems were the fastest-growing category in consumer electronics during the week of Black Friday, the day after Thanksgiving. Meanwhile, the European Commission said it has extended its in-depth investigation into TomTom's proposed acquisition of peer Tele Atlas until May 5, rather than April 17.

Oil giant Shell put on 1.40 pct to 28.29 eur as oil prices gained, helped by the US government's announcement that supplies of crude and heating oil fell sharply last week. Philips added 1.33 pct to 30.40 eur, with investors welcoming news of a new share buyback programme valued at 5 bln eur, starting on Jan 2.

The company also said it is to sell its set-top boxes and connectivity solutions businesses to Pace Micro Technology for 70 mln Pace shares, worth around 90 mln eur at yesterday's close. Hagemeyer ended the day 1.31 pct up at 4.63 eur, with the market relieved that Rexel is to proceed with its 4.85 eur a share takeover offer despite a court damages order imposed on the Dutch group.

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