UK/Euro Financial Market Daily Evening Briefing 26-06-2007

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London shares close lower, rangebound amid conflicting US signals

Leading shares closed weaker on Tuesday, with the market seemingly rangebound for the time being amid mixed signals coming from the US, with BAE Systems sharply lower after the US Department of Justice
started a probe into its compliance with anti-corruption laws.
 
By the close, the FTSE 100 was off 29.1 points at 6,559.3, but off an earlier low of 6,539.9.
 
Elsewhere, the FTSE 250 index closed down 40.3 points at 11,537.1, while all the broader indices were also lower.
 
Over on Wall Street, US stocks struggled to find a direction Tuesday after a slight decline in May new home sales provided investors with some relief but little reason to rally.
 
The Commerce Department reported that sales of new homes fell 1.6 pct in May to a seasonally adjusted annual rate of 915,000. It was the fourth decline in
the past five months -- in April, new home sales had jumped by 12.5 pct -- but a milder decrease than many anticipated.
 
Investors were a bit unnerved by a larger-than-expected drop in the Conference Board's index on consumer confidence, and still jittery about ongoing
subprime lending troubles and what the Federal Reserve might say when it makes its decision on interest rates Thursday.
 
A short while ago, the DJIA was up 58.1 points at 13,409.4, with the Nasdaq up 4.7 at 2,581.2 and the S&P 500 up 1.84 at 1,499.58.
 
Back in the UK, defence and aerospace group BAE Systems plunged nearly 8 pct, or 34-1/2 pence, to 407-3/4, after the US Department of Justice announced it has started a formal investigation relating to the company's compliance with
anti-corruption laws, including its business concerning Saudi Arabia.
 
The company had faced claims US prosecutors may investigate bribery allegations surrounding the Al-Yamamah arms-for-oil deal between the UK and Saudi Arabia.
 
BAE has denied making wrongful payments in its dealings with Saudi Arabia, which include Britain's biggest arms export deal, which was worth an estimated 43 bln stg.
 
"The allegations have so far struggled to draw a clear link between BAE Systems and apparent payments to certain members of the Saudi royal family, although the MoD and the UK government are involved too," said Charles Stanley analyst Jeremy Batstone-Carr.
 
Other analysts have said the investigation could also lead to delays in BAE signing a new deal, called al-Salam, which would see Saudi Arabia buy 72 Eurofighter jets.
 
Elsewhere, UK bank Barclays was hit by news that its chances of buying Dutch bank ABN Amro had improved after a favourable ruling by the Dutch Supreme Court Advocate General. At the close the shares were down 9-1/2 at 710-1/2.
 
If the Supreme Court rules in favour of ABN, analysts say, the odds will become shorter on Barclays succeeding instead of the consortium from Royal Bank of Scotland Group, Banco Santander and Fortis.
 
Still on the downside, a broker downgrade from Citigroup helped push shares in Cadbury Schweppes lower, down 9-1/2 pence at 666, with the broker cutting its rating to 'hold' from 'buy', saying it sees little upside for the share price now the disposal of its beverages business is almost certain, according to insiders.
 
Citigroup said the only upside would be if the firm's confectionery business were to fall prey to a bid.
 
A broker downgrade also hit Sage Group, 4-3/4 lower at 234-3/4, as Credit Suisse cut its recommendation to 'neutral' from 'outperform'.
 
On the upside, Vodafone was one of the top Footsie riser, adding 2.4 to 160.00, after reports that the telecommunications giant is tipped as frontrunner to sell iPhone in Europe.

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Credit Suisse said Apple was likely to unveil a European partner in July for its iPhone, set to launch next week. The broker said Vodafone was the frontrunner to be the partner, with its presence in most European markets.
 
Credit Suisse maintained its 12-month 'neutral' rating for the shares, but said Vodafone were a 'trading buy'.
 
Meanwhile, activist shareholder Efficient Capital Structures has repeated a call for Vodafone either to sell its minority stake in Verizon Wireless or create a separate security to track the US mobile operator.
 
Analysts reckon Vodafone's Verizon Wireless stake could be worth as much as 40 bln stg.
 
Also making progress was Experian Group, up 11 at 600, following its acquisition of a 65 pct stake in Brazilian credit bureau Serasa for 1.2 bln usd, with both Panmure Gordon and Merrill Lynch retaining their 'buy' ratings.
 
In reaction, Panmure Gordon said Experian appears to have bought a well diversified platform into which to introduce and cross sell its extensive suite of added value applications.
 
In other comment, Merrill Lynch said that the expectation Experian will be earnings neutral in 2009 and enhancing thereafter is based upon a 34 pct Brazilian corporate tax rate.
 
Finally among the large caps, WPP took on 3 to 735 after the UK advertising group lifted its share buyback target and delivered stronger-than-forecast revenue growth since the start of 2007.
 
The company, which is home to the Young & Rubicam and J Walter Thompson agencies, said turnover on a like-for-like basis grew 5.2 pct in the first five months of 2007.
 
On the second line, leading floor coverings retailer Carpetright finished 13 lower at 1,237 after the company reported a slight rise in annual profits but several analysts voiced concerns on the mid-term outlook.
 
And investors were disappointed it stayed silent on the likelihood of a formal bid materialising from Lord Harris of Peckham.
 
As it was the company announced an in-line pretax profit of 57.7 mln stg for the year to April 28 2007.
 
Seymour Pierce reiterated its 'hold' rating on the shares and said it was trimming its earnings forecasts for the current year to reflect a cautious outlook for consumer expenditure.
 
On the upside, Go-Ahead Group pushed 68 higher to 2,502 after a positive trading update, with UBS retaining its 'reduce' rating, Deutsche Bank keeping its 'hold' rating, and Merrill Lynch reiterating its 'neutral' rating.
 
And earnings news helped Chemring Group shares move up 55 to 2,040, after the group reported underlying pretax profits from continuing operations of 20.3 mln stg for the six month period to April 30, 2007 -- 68 pct up on the 12.1 mln it reported during the same period last year.
 
The group saw its first-half sales increase by 29 pct year on year to 106.8 mln from 82.6 mln, while the firm's basic EPS shot up 54 pct to 40.7 pence during the period. Chemring said it would pay an interim dividend of 7.20 pence -- 50 pct up on its handout this time last year.
 
Positive broker comment gave Pennon Group a boost, up 8-1/2 to 618, with Lehman Brothers upgrading the group to 'overweight' from 'equal-weight' with an unchanged price target of 690 pence, as part of a utilities sector review.
 
Lehman Brothers said that it sees the UK water sector as fully valued, but after recent underperformance it believes Pennon now looks attractive.

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Stockholm 

Stockholm shares close slightly lower, led by Trelleborg on cartel probe  

Stockholm shares closed sligfhtly lower in jittery trade amid continued concerns over US interest rates, with Trelleborg leading the market down after the company said the costs from a cartel probe could wipe out its 2006 profit. 

The OMX Stockholm index closed down 0.43 pct at 406.39, while the OMX Stockholm 30 finished down 0.46 pct at 1,244.46. Turnover amounted to 24.008 bln skr.   

In total, 98 stocks closed higher, 35 were unchanged, and 173 ended the day lower.    

Trelleborg B closed down 8.69 pct at 194.50. Trelleborg said the total costs from an ongoing EU and US cartel investigation could correspond to a 'predominant' part of its 2006 pretax profits of 1.193 bln skr.   

Trelleborg said that, in a first step, it will take charges of around 75-100 mln skr in its upcoming first-half results.

The EU competition authorities and the US Justice Department have launched investigations relating to an alleged cartel for certain types of marine hoses used to transport oil. The investigations encompass several international
companies, including one of Trelleborg's French subsidiaries, Trelleborg Industrie SAS.   

Other engineering stocks also closed lower with Sandvik down 1.84 at 133.50, SKF B down 1.05 pct at 141.75, and Atlas Copco A down 0.44 pct at 112.50.    

Lindex closed up 5.37 pct at 88.25, after reporting better-than-expected third-quarter profits, and gross margins. 

Hennes & Mauritz B closed up 1.47 pct at 414. Deutsche Bank upgraded shares in Hennes & Mauritz to 'buy' from 'hold' and lifted the target for the Swedish business to 470 skr from 435 skr.    

In a note to clients, the broker said the upgrade reflects H&M's success in online and mail-order business and the fashion chain's strong entrance in the Chinese market.   

Ericsson B helped underpin the market closing up 0.67 pct at 27.06.   

Among telecom operators, TeliaSonera closed down 0.50 pct at 50.00, while Tele2 B closed up 1.11 pct at 113.75. 

Nordea closed down 1.10 pct at 107.70. Nordea's CEO told Svenska Dagbladet that the bank will concentrate on its own projects in the next 3-4 years and may consider mergers after this time.    

Among other heavily-traded shares, Skanska B closed up 1.20 pct at 147, Scania B down 2.62 pct at 167.50, and Saab B up 1.68 pct at 182.

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German shares close lower, led down by Henkel, MAN UPDATE

FRANKFURT (Thomson Financial) - Shares closed lower, led down by Henkel after one of its shareholders sold its stake and by MAN, which was hit by profit-taking

The DAX closed 70.09 points, or 0.88 pct, lower at 7,f860.52, having traded between 7,817.39 and 7,904.53.

The MDAX dropped 90.58 points, or 0.83 pct, to 10,857.00, while the TecDAX was down 4.83 points, or 0.53 pct, at 909.36 points.

DAX futures were 11.00 points, or 0.14 pct, higher at 7,948.50, while bund futures were 0.07 or 0.06 pct higher at 110.56.

The euro was trading at 1.3464 usd, against 1.3455 usd in morning London trade.

Henkel dropped fell 1.76 eur, or 4.42 pct, to 38.04 eur, leading blue chips lower, after Deutsche Bank said it is placing 11.2 mln preference shares in the consumer products company with institutional investors.

MAN fell 3.69 eur, or 3.47 pct, to 102.80 eur due to profit-taking.

Continental, down 1.63 eur, or 1.59 pct, at 101.00 eur, and Allianz, 4.02 eur, or 2.25 pct, weaker at 174.28 eur, were also lower as investors consolidated earlier gains.

Bucking today's negative trend, TUI rose 0.31 eur, or 1.59 pct, to 19.79 eur and Lufthansa gained 0.14 eur, or 0.69 pct, to 20.45 eur.

Deutsche Telekom added 0.06 eur, or 0.45 pct, to 13.51 eur after Goldman Sachs lifted its target for the shares to 14.36 eur from 12.83 and reiterated its 'neutral' stance.

Shares in Volkswagen gained 0.67 eur, or 0.59 pct, to 114.38 eur after Societe Generale lifted its rating on the automaker to 'hold' from 'sell' and raised its price target to 110 eur from 80, primarily on valuation grounds.

SAP was down but outperformed the market, closing 0.26 eur, or 0.69 pct, lower at 37.48 eur, after Morgan Stanley issued a bullish broker note on the software manufacturer, reiterating its 'overweight' rating and its 45 eur per share price target.

Over on the MDAX, Wincor Nixdorf dropped 2.18 eur, or 3.22 pct, to 65.57 eur as the worst performer on the index.

At the top of the other end, AWD Holding jumped 0.75 eur, or 2.41 pct, to 31.87 eur after WestLB raised its stance on the company to 'add' from 'hold' and maintained its price target at 18.2 eur a share, mainly attributing the upgrade to valuation grounds.

IKB was 0.19 eur, or 0.73 pct, higher at 26.34 eur after a report in Frankfurter Allgemeine Zeitung said that competitor DZ Bank may be interested in purchasing its rival.

TecDAX-listed Qiagen was the worst performer on the index, closing 0.37 eur, or 2.78 pct, lower at 12.93 eur, while Adva gained 0.22 eur, or 3.19 pct, to 7.12 eur at the other end.

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Madrid shares close lower; Iberdrola leads losses, Sacyr, Ferrovial up

MADRID (Thomson Financial) - Share prices closed lower after US data failed to provide direction on US interest rates, with Iberdrola leading declines, while Ferrovial and Sacyr staged rebounds from recent losses.

The IBEX-35 index ended down 93.1 points at 14,755.2 after trading in a range of 14,708-14,884 on a turnover of 7.8 bln eur.

Equities opened lower, depressed by Wall Street's overnight pull-back, but pared losses over the morning thanks to a rebound in constructors, though trading remained cautious ahead of key US data this afternoon.

The IBEX-35 moved in to the black after Wall Street opened higher, then slipped back in to the red after data failed to provide sufficient guidance on future interest rate direction.

Iberdrola led losses, falling 1.63 eur or 3.80 pct to 41.21, after announcing a 6.4 bln eur acquisition of US' Energy East and a possible capital hike to finance the deal.

Gas Natural added 0.13 to 44.93, recovering from earlier profit-taking to extend yesterday's gains fuelled by speculation of further stake hikes by Suez. Today, Suez was expected to request CNE approval to raise its stake in Iberdrola above 10 pct and up to 24.99 pct.

Ferrovial climbed 1.30 to 71.80 and Cintra added 0.04 to 11.59, off a high of 11.78, after Citigroup upgraded the stock to 'buy' from hold', citing the company's structural growth story with long-term elements. 

Other constructors enjoyed a rebound from recent heavy losses, with Sacyr rising 0.64 to 36.11 and ACS up 0.35 at 46.93.    

Amongst other companies to enjoy a slight rebound, Colonial rose 0.01 to 4.38. 

Among heavy-weights, Santander slipped 0.12 to 13.62, BBVA was off 0.08 at 18.11 and Telefonica shed 0.05 to 16.24.

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