UK/Euro Financial Market Daily Evening Briefing 30-01-2008

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London shares close lower; New York weak on caution ahead of Fed decision 

At the close, the FTSE 100 index was 47.9 points lower at 5,837.3, above the session low of 5,881.6 but still below an early peak of 5,869.2. The broader FTSE indices ended mixed, with the FTSE 250 index rallying late on, ending up 3.1 points at 9,908.5 as Mitchells & Butlers shares leapt on bid approach news. Volume was moderate, with 2.197 bln shares changing hands in 704,241 deals.

On Wall Street, by London's close, the DJIA was 45.30 points lower at 12,435.0, while the S&P 500 index was 5.35 points weaker at 1,356.95, and the Nasdaq composite index was 6.50 points easier at 2,351.56.

In London, drugs group Shire was a big blue chip faller again today, shedding 36 pence at 899 as Goldman Sachs became the latest broker to downgrade its stance on the group, to 'neutral' from 'buy' with a reduced price target of 990 pence, down from 1,250 pence.

Goldman Sachs said that following a proprietary survey of ADHD treating physicians, it no longer anticipates acceleration in Vyvanse prescription trends. Sandford Bernstein cut its stance on Shire to 'underperform' on Monday, and earlier this month Merrill Lynch reduced its stance to 'neutral'.

Among Shire's peers, GlaxoSmithKline shed 26 pence at 1,174, while Astrazeneca lost 60 pence at 2,120 ahead of its fourth-quarter numbers due tomorrow.

Elsewhere, Friends Provident was also weak, dropping 7.1 pence to 155.2 as takeover hopes for the insurer faded after yesterday's news that Standard Life's UK head, Trevor Matthews has been appointed Friend's chief executive.

The insurer is due to reveal the outcome of its long-awaited strategy review tomorrow, together with its latest new business numbers, which is expected to reveal a break-up, or at least the disposal of some operations.

Standard Life shares lost 4.0 pence at 224.0 as the departure of Trevor Matthews overshadowed a good set of full-year new business figures figures.

Collins Stewart reiterated its 'hold' stance on Standard Life pointing out that the management change is not good news as Matthews was the obvious successor to its current CEO Sandy Crombie. Staying with financials, banks were also prominent among the fallers, with investors uneasy after news of a larger than feared fourth-quarter loss from Swiss banking giant UBS.

Citigroup added to the downbeat mood, with a note examining how highly leveraged banks would cope with a recession in which it reiterated 'sell' ratings on Royal Bank of Scotland and Barclays and cut target prices for both to 400 pence from 450, and 350 pence from 400 respectively. RBS shares lost 14-1/2 pence at 385-1/4, and Barclays was down 12-1/2 pence at 478-1/2.

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Meanwhile, British Land shares dropped 36 pence to 984 in reaction to a Citigroup downgrade to 'hold' from 'buy' as part of a sector review, although the the broker raised its target to 1,100 pence from 1,000.

Citigroup said it is keeping a cautious stance on the UK real estate generally, and that while the sector's large caps should outperform, it thinks that they have little upside.

Turning to the blue chips gainers, Experian was the top FTSE 100 riser, adding 23-1/2 pence at 432-1/2 supported by an investors relations seminar held by the credit checking firm yesterday.

Spotlighting the meeting, Barclays Wealth Research said that although it took some encouragement from the meeting, it still feels visibility is too low to turn positive on the stock and maintains a 'neutral' rating and 450 pence fair value on Experian.

TUI Travel was also a good gainer, up another 8 pence to 248 as investors continued to welcome yesterday's solid maiden trading update from the merged tour operator. Landsbanki today repeated its preference for TUI Travel over blue chip peer Thomas Cook Group, which itself issued above-forecast full-year results today.

Thomas Cook shares took on 3 pence at 263 after reporting a 26 pct rise in full-year earnings and saying it has been encouraged by the performance of the business since the year end and by its ongoing current trading.

Among the heavyweight miners, Rio Tinto gained 149 pence at 4,819 amid reports BHP Billiton is continuing to consider its options ahead of the Takeover Panel's Feb 6 'put up or shut-up' deadline.

Rio's advisors Macquarie Bank have suggested that BHP could afford to increase its share proposal to as much as five-for-one given the benefits of creating a mining "super major", The Australian newspaper reported on Wednesday. BHP Billiton shares were up at 1,458.

Meanwhile Kazakhmys shares climbed 9 pence higher to 1,202 after the copper producer said in a fourth-quarter production report that full-year copper cathode production of 381,200 tonnes, down 6.3 pct from 2006, was in line with previous guidance.

And pubs firm Enterprise Inns added 18-3/4 pence at 449-1/2 after a late rally on sector consolidation hopes. Peer Mitchells & Butlers was the top mid cap performer, jumping 72 pence higher to 473 after the group confirmed that it has received takeover approaches, although no talks have taken place.

M&B said its adviser Citi had received "preliminary and tentative" expressions of interest in the company from a number of parties. The news gave a boost to Punch Taverns as well, up 33-1/2 pence at 709-1/2.

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Elsewhere, International Ferro Metals rallied 5-1/2 pence higher to 87-1/2 on news it has increased the operating capacity of its furnaces to 80 pct after receiving approval from South African electricity provider Eskom.

Last week, International Ferro Metals said Eskom had instructed the company to switch off its two ferrochrome furnaces because of the power supply crisis in South Africa.

And Aquarius Platinum also benefited from an easing of the electricity outage measures in South Africa, adding 45 pence at 604-1/2.

But among the FTSE 250 fallers, PartyGaming was the worst casualty, shedding 2-1/2 pence at 26 after its latest trading update disappointed, with Deutsche Bank saying the on-line gambling group had missed the broker's fourth-quarter net revenue estimates.

And GKN shares shed 8-3/4 pence at 267 after Goldman Sachs cut its rating to 'neutral' from 'buy' and reduced its target to 280 pence from 330 as part of a review of the European autos & auto parts sector.

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UK Small Cap Report:
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Paris shares down in cautious trade pre-Fed; SocGen spikes on M&A hopes

The CAC-40 index finished down 67.88 points or 1.37 pct at 4,873.57. Among CAC-40 stocks, 5 closed higher, 34 closed lower and 1 was unchanged. On the Matif, February CAC-40 futures were trading at 4,868.

On the broader indices, the SBF-80 index closed down 64.32 or 1.15 pct at 5,541.50 and the SBF-120 ended down 48.06 or 1.34 pct at 3,527.13.

The euro was quoted at 1.4781 usd compared to 1.4774 usd late yesterday. SocGen shares spiked late afternoon after an Agence France-Presse quoted a board member as saying CEO Daniel Bouton told today's board meeting that he is prepared to "study" a friendly approach.

The bank later denied that the subject was discussed at the meeting. SocGen shares soared 10 pct yesterday on rumours of an imminent takeover deal, with BNP Paribas cited as a likely suitor given that has already said it plans to ensure SocGen remains under French ownership and wants to prevent a predator taking advantage of the weak share price.

SocGen closed up 3.35 eur or 4.27 pct at 81.80, while BNP fell 0.77 or 1.14 pct to 66.83. Credit Agricole, which has also been cited as a potential partner for SocGen, rose 0.51 or 2.44 pct to 21.41.

BNP shares were pushed down by this morning's preliminary 2007 results, which included a smaller than hoped for fourth-quarter profit. Deutsche Bank said preliminary net profit from the banking group missed its estimates by 600 mln eur due to higher than expected writedowns and provisions.

Speculation over the future of SocGen also continued to lift Boursorama, online financial services subsidiary that is 56 pct-owned by SocGen.

Shares surged 0.91 or 14.13 pct to 7.13, extending yesterday's gains, as rumours continue to circulate that SocGen might be forced to sell off the unit either to raise cash or as part of a possible carve-up of the banking group. "There's nothing specific, just rumours at the moment, so it all needs to be taken with caution," one dealer commented.

Elsewhere, car stocks suffered after recent strong gains, as Goldman's downbeat take on the industry outlook dented investor sentiment.

Renault led the CAC-40 fallers, down 4.79 or 5.99 pct at 75.14, followed closely by tyre maker Michelin, down 2.69 or 3.89 pct at 66.43, and rival car manufacturer Peugeot, off 1.61 or 3.14 pct at 49.71.

Goldman said it had adjusted its 2008 earnings estimates across the auto sector to take into account zero growth in global car sales and production. It cut its stance on Renault to 'neutral' from 'buy' and lowered its recommendation on Michelin to 'sell' from 'neutral'.

WestLB exacerbated the negative mood, cutting its stance on Peugeot to 'hold' from 'add', saying the group's profit outlook has deteriorated due to of the weakness of the British pound and slowing European economic growth.

Among other heavy fallers, Vallourec gave up 5.56 or 3.97 pct to 134.60 after Societe Generale cut its rating on the seamless tubemaker to 'sell' from 'hold' and slashed its price target to 110 eur from 210.

The broker highlighted the probability of margin pressure caused by competition from China and said it was no longer applying a speculative premium to Vallourec shares while also pricing in a 40 pct probability of a recessionary scenario.

Outside the CAC-40, Technip plunged 4.51 or 9.31 pct to 43.95 after issuing a profit-warning this morning due to charges for problem contracts.

Analysts at Landsbanki Kepler said the charges represent 2.6 eur per Technip share and some of the provisions concern contracts that are not yet finished, so further risks could be involved. Also among midcaps, JCDecaux shed 1.43 or 6.28 pct to 21.34, with investors taking profits after Q4 and full-year sales failed to deliver any positive surprises.

"They often publish good organic growth, in line with market expectations, but this doesn't always show up in operating profitability, so the market is pretty nonplussed, particularly with a lack of 2007 earnings guidance," a Paris dealer commented.

Back in positive territory, construction group Vinci added 0.28 or 0.62 pct to 45.43, buoyed by strong tariff rises at the group's motorway concession units ASF and Cofiroute. According to Deutsche Bank, the rises are reassuring after the limited rises introduced by rivals APRR and SANEF had prompted price concerns for Vinci's concessions.

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German shares close lower, as investors speculate ahead of Fed decision

The DAX was down 17.61 points or 0.26 pct at 6,875.35 points, having traded between a low of 6,822.44 points and a high of 6,920.77 points. The MDAX lost 70.72 points or 0.81 pct to 8,711.19 points, while the TecDAX pared 8.38 points or 1.05 pct to 791.00 points.

DAX futures shed 35.50 points or 0.51 pct to 6,907.50 points, while bund futures lost 0.29 points or 0.25 pct at 115.89. The euro was trading at 1.4780 usd, compared with 1.4808 usd in London midday trade. In particular automotive stocks were under pressure after a sector study by Goldman Sachs cast shadows on the industry's prospects.

Leading German blue chips lower, Continental shed 3.11 eur or 4.19 pct to 71.19 eur, after Goldman Sachs put the share on its 'conviction sell list', with a price target of 63 eur and a 'sell' recommendation.

MAN lost 2.47 eur or 2.82 pct at 85.15. Volkswagen shed 3.96 eur or 2.53 pct to 152.44, after Goldman Sachs reduced its price target to 170 eur from 208 eur and its recommendation to 'neutral' from 'buy'.

Metro lost 1.28 eur or 2.26 pct at 55.37. Hypo Real Estate was down 0.49 eur or 2.29 pct at 20.89 eur, under pressure by disappointing earnings released by peer UBS.

As the strongest performer of the German large-caps index, Munich Re gained 6.70 eur or 5.87 pct to 120.86, after it released a record 2007 net profit of 3.9 bln eur and said it will suggest paying a dividend of 5.50 eur per share, after last year's 4.50 eur.

Infineon jumped 0.37 eur or 5.81 pct to 6.74 eur, after UBS released positive comments on the chip-maker industry and lifted its recommendation for Infineon's Qimonda unit to 'buy' from 'neutral'. Shares in Adidas advanced 1.29 eur or 3.09 pct to 43.02 eur, after the company today launched a 420 mln eur share buy-back programme.

SAP advanced 0.22 eur or 0.70 pct to 31.67 eur, as the company presented solid 2007 full-year earnings and pleased investors with a positive 2008 outlook. SAP said it expects revenue from software and related-services to grow 24 to 27 pct when adjusting for currency swings during the year and an EBIT margin of 27.5-28 pct.

BMW escaped the automotive sector's negative trend and was up 0.21 eur or 0.56 pct to 37.56 eur, after the German luxury car-maker released record 2007 sales. Sales grew 14.3 pct to 56.02 bln eur.

Over on the MDAX, Arcandor won 0.55 eur or 4.72 pct at 12.20, while K&S lost 8.70 eur or 4.96 pct to 166.66 eur, making it the worst performer on its index.

TecDax-listed AT & S lost 0.55 eur or 4.10 pct to 12.87 eur, while Bechtle increased 0.52 eur or 2.42 pct to 22.05 eur, the measure's best performer.

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Amsterdam shares close lower; SBM Offshore outperforms on FY results

The AEX closed 3.04 points or 0.68 pct lower at 443.04, after opening at 442.60 and trading in the range 439.98-445.54. Government bonds traded lower, while the euro stood at 1.4785 usd, compared with 1.4764 usd late yesterday.

Oil-services company SBM Offshore led the blue chip gainers, adding 4.64 pct to 20.28 eur, with analysts generally upbeat about its full year results and 2008 outlook.

Brewer Heineken led decliners, off 3.92 pct at 38.71 eur, after a downgrade to 'equal-weight' from 'overweight' at Morgan Stanley.

Property giant Unibail-Rodamco was off 2.43 pct at 157.40 eur, after saying it and subsidiary Rodamco Europe have sold part of their Dutch property portfolio to IEF Capital NV for 775 mln eur.

On the midcap, Crucell fell 2.60 pct to 9.37 eur. The Dutch biotech company said today it has nominated Steve Davis as a supervisory board member.

Local issue Nieuwe Steen Investments slipped 1.63 pct to 17.46 eur. The Dutch property group reported full-year results in line with expectations this morning.

Back on the main index, Fortis gained 2.28 pct to 15.24 eur while Aegon was 0.49 pct higher at 10.26 eur. KPN brushed off a downgrade to 'hold' from 'add' at Petercam, to gain 0.59 pct to 11.87 eur.

ASMI fell 0.23 pct to 12.86 eur, but outperformed the wider market, as a source told Thomson Financial News that hedge fund Centaurus Capital has built up a 4 pct stake in the company and could soon come out publicly in support of proposals from activist ASMI shareholder Fursa Alternative Strategies UK Ltd.

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