UK/Euro Financial Market Daily Evening Briefing 25-06-2007

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London shares close firmer; NY higher; Sainsbury up on bid rumours 

London shares closed firmer frecovering from lows as Wall Street remained higher with Sainsbury up in the blue chips amid rumours that part of the founding family's holding was changing hands at 610 pence a share, with a possible bid for the group imminent.

By close the FTSE 100 index was 21 points ahead at 6,588.4 having hit an earlier low of 6,522.3, while the FTSE 250 index closed 11.7 points lower at 11,577.4. 

Volume remained average at 3.18 bln shares trading in 477,004 deals.

"The market is still digesting much uncertainty with concerns of rising bond yields although they are showing some signs of stabilising, the sub prime mortgage market and the Bear Stearns [move to save two hedge funds near
collapse] situation. The market is going through a period of nervousness," said Tim Rees, fund manager of the Equity High Income fund at Insight Investment.

"We are seeing rotation away from the midcap and into the more resilient large cap stocks such as the oils and pharmaceuticals," added Rees. 

Across the pond, Wall Street opened stronger as investors went bargain hunting after last week's drubbing of the major indices.

The mood was helped as oil prices slumped on global markets at the end of a general strike in Nigeria that had threatened exports.   

By London's close the Dow Jones Industrial Average index was up 93.70 points ahead at 13,454.0 while the tech-heavy Nasdaq drifted up 12.21 points  to 2,601.17.

The S&P 500 index advanced 10.09 at 1,512.65.  

In US economic news, existing home sales in the US were down again in May, falling 0.3 pct to a 5.99 mln unit annual rate, according to the National Association of Realtors.

That was in line with the expected 5.97 mln and the lowest sales rate since 5.94 mln in June of 2003. April sales were revised upwards to a 6.01 mln unit rate.

Back in London, on the upside, Sainsbury gained 10 pence at 582-1/2 on rumours of a possible bid for the group after close today, amid rumours that the Sainsbury family stake could change hands at 610 pence a share.

Its peers were also higher Tesco was 4-3/4 firmer at 435-1/2 and Morrison edged up 2-1/4 at 294-1/4.

A Citigroup pub sector review helped Enterprise Inns move up 12-1/2 pence to 686-1/2. The broker upgraded Enterprise to 'buy' from 'hold', with an increased target of 859 pence from 762 as part of the broker's pub sector review today. 

Citigroup said if Enterprise Inns can convert into a Real Estate Investments Trust (REIT) the shares will be worth 60 pct more than the current price.   

However there is a risk to the downside, assuming it doesn't get REIT status, and the broker sees less than a 10 pct upside in this scenario.   

Peer Mitchells & Butlers was 1 pence higher at 869, after Citigroup upgraded its target to 1,039 from 931 and repeated its 'buy' recommendation.    

And elsewhere, Hanson shares took on 2 pence to 1,076-1/2, after saying it sees first-half trading in line with expectations.    

On the blue chip downside the weaker copper price hit the mining sector amid a series of downgrades to several mining stocks by Cazenove.

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Copper dipped as the London Metal Exchange reported rising stockpiles of the metal and after the threat of strike action at Chile's national copper miner was averted on Friday after successful wage negotiations.

Whilfe prices are taking some support from the threat of further supply disruptions in South America, they have been further pressured by speculation that Chinese demand is falling, analysts said.   

In broker comment, Cazenove downgraded its rating for Antofagasta to 'underperform' from 'in-line', cut Anglo American to 'in-line' from 'outperform', but upped BHP Billiton to 'outperform' from 'in-line' in a review
of the mining sector.    

The broker said the changes come in tandem with increases in its commodity price forecasts for both 2007 and 2008, resuming an upward trend having left most of its commodity and currency assumptions unchanged in its last full sector review six months ago.    

Cazenove said its new commodity pricing assumptions lead it to raise EPS forecasts within the mining sector for 2007 and 2008 by between a level of 50 pct for Lonmin to just 1 pct for Kazakhmys, with Antofagasta's forecasts left unchanged.   

Anglo American slipped 42 pence to 2,995, Antofagasta eased 10 pence to 608-1/2, Kazakhmys shed 13 pence to 1,269, Lonmin was down 66 pence to 4,046 and Vedanta Resources was 24 pence easier at 1,582. 

The ongoing concerns surrounding the losses at two of Bear Stearns hedge funds weighed further on HSBC down 0-1/2 at 925-1/2 and Lloyds TSB off 1-1/2 at 567.   

Elsewhere, Cadbury Schweppes was also a big faller, extending last weeks losses, down 6 at 675-1/2.

Meanwhile, shares in Centrica were lower, down 1 at 384-1/4, despite an in-line trading statement which showed first-half trading remains buoyant due to low spot gas prices.   

Centrica said it continues to trade strongly and expects continuing low spot prices for gas in the UK to improve its first-half results further.   

The group plans to announce its interim results on August 2 2007.   

Looking at the midcap risers, vague interest of private equity interest pushed Forth Ports 84 pence better at 1,846 but some attributed the gains to some low key buying following recent interest. Volume was modest with only 237,000 trading which suggested that bid rumours were just that -- rumours.  

Meanwhile, Restaurant Group took on 9 pence to 318 on M&A news in associated company Living Ventures, with Altium Securities reiterating its 'add' stance and 350 pence target.   

Earlier today, Restaurant Group announced that Living Ventures had sold its interest in The Living Room business for a total consideration of 28 mln stg to Ultimate Leisure Group.   

Living Ventures will use the proceeds to reduce bank debt and repay outstanding loan interest and preference debt to Restaurant Group, with the remaining proceeds to be distributed to the shareholders of Living Ventures.   

In reaction, Altium said the expected 7.8 mln stg to be received by Restaurant Group should be seen as a positive, given the broker has never been a fan of the Living Rooms investment.   

Turning to the FTSE 250 fallers, a profit warning hit Pendragon shares, losing over 16 pct or 16 pence to 82 after saying it expects its full-year operating profits to be down by 20 mln stg and anticipates a 10 mln stg drop in
2008, blaming a slowdown in consumer spending.   

Filtrona was down 3-3/4 at 269 after the group updated on trading and announced the disposal of its Brazilian consumer packaging arm, leading UBS to repeat its 'neutral' stance and 320 pence target.    

Meanwhile, shares in the London Stock Exchange slipped back, down 14 pence 1,342-1/2, following news of the merger between the UK group and Borsa Italiana which was confirmed over the weekend, with Credit Suisse reiterating its 'underweight' stance.    

The LSE confirmed on Saturday it is buying Milan's Borsa Italiana for 1.6 bln eur in shares.   

Shareholders of both exchanges must still approve the merger, which also needs the green light from competition regulators in Italy, the UK and the EU. The LSE hopes to secure shareholder approval in July, the spokesman said.

Credit Suisse said it believed the cost synergy target should be comfortably achieved but that revenue synergies are less tangible.   

It believes the acquisition price being paid is relatively favourable when compared to other transactions in the space.

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For a summary of today's trading on the FTSE 250 and the AIM, click here

FRANKFURT

German shares closed lower, weighed dfown by financial stocks after Bear Stearns committed to giving one of its hedge funds 3.2 bln usd to stave off a possible collapse, though positive news from an Ifo meeting earlier and a higher opening on Wall Street helped stocks advance from intraday lows.

The DAX closed 19.02 points or 0.24 pct lower at 7,930.61 points, having traded between 7,829.78 and 7,942.94. 

The MDAX dropped 55.08 points or 0.50 pct to 10,947.58 points, while the TecDAX was down 8.60 points or 0.93 pct at 914.19 points.   

DAX futures were 33.00 or 0.41 pct higher at 8,009.00, while bund futuresadded 0.07 or 0.06 pct to 110.38.   

The euro traded at 1.3452 usd, against 1.3458 usd in midday London trade.   

The Ifo research institute raised its forecast for German GDP growth to 2.6 pct for 2007 from its previous 1.9 pct forecast, and to 2.5 pct from 2.3 pct for 2008.   

It said the economic upswing this year will continue but will not match the robust pace of the past year, and 2008 economic expansion will be entering its last phase.   

An upwards-moving impulse could come after the DAX sinks to around 7,700, the trader said.   

Over in the US, existing home sales fell less than expected, indicating the housing market situation is not as dire as feared and helping Wall Street to gain in early trade.   

On the Frankfurt trading floor, financial stocks were a weak feature today.    

Deutsche Bank closed 1.45 eur or 1.31 pct lower at 109.00 eur, and Commerzbank declined 0.24 eur or 0.67 pct to 35.46 eur.   

Financials that rely heavily on investment banking were hurt today by Bear Stearns' announcement last week it would provide up to 3.2 bln usd of secured financing to the Bear Stearns High-Grade Structured Credit Fund to stabilize the fund, which caters to borrowers with weak credit and has suffered in the housing downturn as delinquent loans rose.   

Fellow financial Hypo Real Estate was 0.63 eur or 1.30 pct lower at 47.93 eur.   

DaimlerChrysler slid 0.70 eur or 1.03 pct to 67.00 eur following a report in the Handelsblatt that said the carmaker's Mercedes division does not plan to intensify its cooperation with rival BMW.   

BMW shares were down 0.03 eur or 0.06 pct at 47.97, but outperformed the market.    

Peer Volkswagen gained 0.49 eur or 0.43 pct to 113.71 eur.   

Deutsche Boerse lost 0.19 eur or 0.23 pct to 83.26 eur today. The London Stock Exchange confirmed Saturday it is buying Milan's Borsa Italiana for 1.6 bln eur in shares.   

Bayer fell 0.20 eur or 0.35 pct to 56.21 eur after UBS raised its target to 70 from 66 eur per share.   

Siemens eased 0.06 eur or 0.06 pct to 104.99 eur, outpacing the market on a string of target upgrades from Merrill Lynch, Citigroup and JP Morgan.   

On the positive side, E.ON gained 1.77 eur or 1.49 pct to 120.90 eur, while TUI advanced 0.27 eur or 1.41 pct to 19.48 eur.      

Over on the MDAX, Norddeutsche Affinerie fell 1.83 eur or 5.44 pct to 31.80 eur, as the index's worst performer, after it said it will offer 30 eur a share cash for the copper manufacturer Cumerio as part of a planned merger to form Europe's leading copper maker and processing group.   

Premiere was the top performer on the MDAX, up 0.51 eur or 2.95 pct to 17.77 eur after the pay-TV provider's shares received a boost from a Welt am Sonntag report that said it has proposed giving new soccer primary broadcast rights entirely to pay-TV providers.    

KartstadtQuelle gained 0.35 eur or 1.40 pct to 25.38 eur after revealing it plans to divest its share of a real estate joint venture with a Goldman Sachs fund this year, which has attracted the interest of some 20 potential buyers, a
spokesman for the company said, confirming a report in the Sunday Times.   

TexDAX-listed Epcos dropped 0.42 eur or 2.62 pct to 15.60 eur as the top decliner on the index.   

Meanwhile, Ersol added 1.66 eur or 2.62 pct to 65.03 eur as the biggest gainer on the index.

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Paris shares close down as France Telecom sell-off offsets US gains

Share prices ended lower as early gains on Walfl Street were offset by heavy selling in shares in both heavyweight Total and France Telecom after the French government last night annoufnced the sale of a major stake in the telecoms group.

The CAC-40 index ended down 20.40 or 0.34 pct at 6,002.85 on turnover of 6.7 bln eur, of which 1 bln in France Telecom alone.

29 CAC-40 stocks closed down and 11 up.

On the Matif, July CAC-40 futures were trading down 18.5 points at 6,020. The euro was at 1.3452 usd compared to 1.3434 late Friday.

France Telecom led the index lower, shedding 0.40 eur 1.90 pct at 20.60 as the French government announced a sale of a further 5-7 pct tranche of its holding in the group. 

A Paris dealer said the placement started this morning with a price range of 20.4-20.7 eur per share, which utomatically brought down the shares from their Friday closing price of 21.00 eur. 

Finance minister Christine Lagarde said in a statement late on Sunday the government would sell the stake through an initial offering of 130 mln shares, via an accelerated book-building offer for institutional investors, with the option of raising this figure to 180 mln shares. 

Vallourec was another heavy decliner, off 4.60 or 1.90 pct at 237.50, erasing some of its 3.4 pct gains Friday and in line with oil and oil services shares after labour unions in Nigeria ended Saturday a four-day general strike
on Saturday, which had threatened to disrupt exports from Africa's largest crude producer.

Total fell 0.21 to 62.28 and Technip dropped 1.01 to 60.09.

Property stocks suffered a knock-on effect from nagging US concerns about subprime loans and interest rates, with Unibail-Rodamco falling 2.58 or 1.31 pct to 194.48, Klepierre dropping 3.55 or 2.74 pct to 125.99 and Kaufman & Broad giving up 1.02 or 1.79 pct to 56.05.

Other blue chips to see profit-taking included Schneider Electric, down 1.83 or 1.73 pct at 104.06 and EDF, off 1.22 or 1.54 pct at 77.78.

EADS gave up 0.12 to 23.98. Analysts welcomed the 425 firm orders announced by the aeronautics group at last week's Paris Air Show, although some voiced concerns that EADS has been offering heavy discounts while also remaining well behind Boeing in its development programme.

LVMH was down 0.05 at 84.79. The luxury goods group declined to comment Friday on a report from Les Echos that it has hired investment bank Lazard to study the sale of rival business daily La Tribune.

Other press reports have also claimed LVMH is looking to sell La Tribune, as part of its negotiations to buy Les Echos.

Neither business daily was published today after staff went on strike Friday.

On the upside, Danone led blue chip climbers, adding 0.99 or 1.72 pct to 58.56.

Weekend reports in Le Journal des Finances and Investir raised again the possibility of a takeover bid for the French group, while also underlining its positive outlook despite current litigation with Chinese partner Wahaha.

Le Journal des Finances said some investors continue to speculate about a takeover move from the likes of PepsiCo, Coca-Cola or even Kraft Foods, with the financial weekly estimating a bid for Danone would be worth 75-80 eur per share.

However, JDF cautioned that the recent drop in Danone's share price is not enough to give weight to such speculation, while a Paris dealer noted that the article did not provide any new angle.

Danone said it today filed with the US SEC to delist its American Depository Shares, a decision announced earlier this year.

On the second line, Remy Cointreau surged 2.13 or 4.02 pct to 55.14 after reporting a strong operating performance and smaller than expected net loss for 2006/07.

Analysts at Fideuram Wargny, meanwhile, gave an upbeat assessment of Remy Cointreau's results, raising their stance on the stock to 'buy' from 'reduce' and setting a price objective of 60 eur.

But investors were disappointed with the lack of guidance for the year ahead, which dealers said explained the stock's drop in opening deals.

Peer Pernod rose on Remy's coat tails, adding 2.02 or 1.27 pct to 160.94

Alten jumped 1.44 or 5.47 pct to 27.76 after Friday's announcement that chairman Simon Azoulay will increase his stake in the company and acquire a majority of voting rights.

Azoulay is to raise his stake in holding-company SGTI from 52 to 100 pct by acquiring the stakes of fellow founders Laurent Schwarz et Thierry Woog. As a result, he will control 39.4 pct of the capital and 56.1 pct of the voting rights in Alten, the company said.

In a note today, Deutsche Bank called the move "a major catalyst", since it shows the chairman's confidence in Alten's prospects.

Aeroports de Paris (ADP) rose 0.12 to 85.50 after being upgraded to 'outperform' from 'neutral' by Exane BNP Paribas, with a raised target of 95 eur versus 63 previously, according to market sources. 

In a note this morning, Exane analysts highlighted property as one of three main value components for ADP, together with increasing capacity at its main Paris airports and a speculative M&A element.

CEO Pierre Graff, meanwhile, reiterated to Le Parisien that ADP will invest 2.7 bln eur to increase its passenger capacity by 20 mln by 2010.

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Stockholm shares close slightly lower, off lows on Wall St rebound

Stockholm shares clofsed slightly lower, well off earlier lows after a positive start on Wall Street helped underpin the market, but with investors remaining cautious after recent volatility.

The OMX Stockholm index closed down 0.38 pct at 408.15, while the OMX Stockholm 30 closed down 0.22 pct at 1,250.16. Turnover amounted to 22.077 bln skr.

In total on the market, 87 stocks closed higher, 35 unchanged and 184 lower. 

Ericsson B closed down 1.03 pct at 26.88 skr bid as investors continued to take profits after last week's stage-managed release of orders produced a mini rally in the stock.

Among telecom operators, TeliaSonera closed down 0.99 pct at 50.25, and Tele2 B up 0.45 pct at 112.50. 

Saab B was day's main loser, closing down 4.28 pct at 179, as investors questioned the defence group's decision on Friday to take a 7.5 pct stake in a new Norwegian holding-company Aker Holding, in which the Norwegian state will hold a 30 pct stake.

Saab will pay 1.2 bln nkr for the stake.

"Strictly financially, Saab's investment has little upside but at the same time as little downside. Politically I cannot see that this would give Saab an increased chance to sell its Gripen fighters, as the Norwegian state is taking great pains to do the procurement process in a correct way. It is improbable that the investment will affect positively," an analyst at a leading Nordic bank said.

He said investors think Saab should have distributed the money to shareholders or done something else, rather than make the Aker investment.

Engineering stocks all closed lower with Sandvik down 0.18 pct at 136, SKF B down 0.35 pct at 143.25, and Atlas Copco A down 0.44 pct at 113. 

Assa Abloy B closed down 0.17 pct at 148.17. Assa Abloy said it is seeking to buy South Korea's digital door lock company iRevo Co. Ltd for 54 bln won (58 mln usd) in cash and on a debt-free basis.

OMX closed up 0.72 pct at 209.50. OMX is close to winning technology order from pan-European equities trading platform Turquoise, the Daily Telegraph reported. 

Skanska B had a rough session, closing down 2.52 pct at 145.25. An analyst at Handelsbanken Markets told CNBC Nordic TV he could see no fundamental reason for today's selling in Skanska. 

NCC B also closed down 2.65 pct at 183.50

Lindex closed down 0.30 pct at 83.75, ahead of tomorrow's Q3 results. Carnegie said in a note that it believes a trough is near. 

"Tough comparisons and German closure weigh on sales and earnings but looking ahead the absence of Germany plus easy comparisons could trigger relief," it said.

Volvo B finished down 1.96 pct at 137.75. It said deliveries from its truck operations, which include Volvo Trucks, Nissan Diesel and Mack and Renault Trucks, fell 10 pct in January-May compared with the corresponding period of
last year. Excluding recently acquired Nissan Diesel, deliveries decreased 17 pct compared with the year-earlier period.

Among other heavily traded shares, Hennes & Mauritz B closed up 1.37 pct at 408, Nordea up 0.55 pct at 108.90, and Boliden down 0.52 pct at 144.

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