UK/Euro Financial Market Daily Evening Briefing 31-05-2007

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London shares close higher, off peaks with resource stocks prominent

UK blue-chips closed higher on Thursday, but off peaks with resource stocks dominating the leader board amid some selective positioning by investors ahead of tomorrow's US jobs data, dealers said.
   
By the close, the FTSE 100 index was up 19.3 points at 6,621.4, having traded within a 50 point range during the session, while the broader indices also made headway. Volume was relatively heavy, with 3.28 bln shares changing hands in 546,813 deals.
   
Over on Wall Street, US stocks plodded higher on Thursday as the market reacted warmly to another batch of acquisitions, but the mood was muted by a weak reading of the nation's gross domestic product.
   
The latest estimate of first-quarter GDP came in at 0.6 pct, the Commerce Department said, lower than the average economist estimate of 0.8 pct and the 1.3 pct projected in April. The GDP number was the worst in more than four years. A short while ago the Dow was up 7.7 at 13,642.1 with the Nasdaq up 9.64 at 2602.23.
   
In London today, resource stocks packed the list of gainers as firm metal prices and consolidation hopes attracted buyers. Xstrata took on 122 to 2,902, Kazakhmys took on 39 to 1,298, while Anglo American rose 124 to 3,039 amid some positive broker comment from Citigroup.
   
The broker said the overall impressions after meeting Anglo American's new chief executive, Cynthia Carroll were that she is having a dramatic impact on redefining the DNA of Anglo, and influencing the way the company operates, leaving it with a more positive longer-term outlook.
   
Elsewhere, Johnson Matthey had a good session finishing up 58 at 1626 after Citigroup upgraded to 'buy' from 'hold' and upped its target to 1,800 pence from 1,400.
   
Citigroup said part of Johnson Matthey's strength lies in the fact that its raw materials are metal-based and so the price risks are substantially borne by its customers.
   
Real estate names were in demand following news overnight in which Morgan Stanley's real estate unit bought Australia's Investa Properties for 6.6 bln aud.
   
The deal came close on the heels of another deal in which US real estate investment trust Archstone-Smith agreed to be acquired by Tishmen Speyer Properties and Lehman Brothers Holdings in a deal worth 15.5 bln usd.
   
Land Securities took on 58 to 1,946, British Land 22 to 1,448, and Hammerson 31 to 1,592.
   
Elsewhere, buyers came for BAE Systems, 11 firmer at 447-1/4, after the Financial Times reported the defence group is in talks with the South African government to create a jointly-owned company with Denel, the state-owned defence group.
   

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Also on the reporting front, Scottish & Southern Energy was 13 up at 1,523 after revealing full-year results that came in at the top end of consensus estimates, prompting Credit Suisse to upgrade its stance in the energy provider to 'outperform' from 'neutral' and hike its price target to 1,650 pence from 1,440.
   
DSG International was also in demand, up 0.8 at 168.3 following news its chief executive John Clare is retiring, prompting positive reactions from brokers.
   
Pali International responded by reiterating its 'buy' stance on the retailer, saying overall it thinks this will be a year of profit recovery for DSG, and with hopes of a shake-up in management and perhaps a break-up bid, advanced by today's news, the shares are very good value.
   
On the downside, meanwhile, Kingfisher was the main casualty, 4.5 lower at 248.25 as investors shied away from the DIY retailer following its cautious outlook statement in which it said its core UK market remained challenging.
   
However, brokers were mostly upbeat on the numbers after Kingfisher unveiled a 29.5 pct increase in first quarter retail profit to 88.6 mln stg -- broadly in line with analysts expectations -- with its performance boosted by the warm spring weather.
   
Vodafone was also out of favour, off 2.5 at 158.0, as WestLB downgraded the mobile phone retailer to 'reduce' from 'hold' with its target maintained at 155 pence.
   
WestLB argued the rise in Vodafone's shares in the last few days is not warranted by its full-year results released on May 29 and bears more relation to speculative M&A activity.
   
GlaxoSmithKline also remained under the cosh, off 18 at 1310 following news surrounding its diabetes drug Avandia with JP Morgan cutting its target for the drug manufacturer.
   
Sentiment was also hit after its cervical cancer vaccine Cervarix was granted a normal length 10-month review by US medicine regulators, although it was hoping the shot would be granted a priority review, which could have led to a marketing license being granted in only six months.
   
Conversely, on the second line, FKI jumped 8.25 to 138 on vague takeover talk with 170 pence bandied about as a possible takeover price although no names were mentioned.
   
Colt Telecom was in demand, up 8.75 at 155.0, but on no news flow with traders attributing the gains to some "catch up" after the telco group's shares have underperformed its larger peers.
   
Elsewhere, shares in BSS Group took on 19-1/4 to 503-1/2, buoyed by positive broker comment as Citigroup raised its target to 515 pence from 500 and reiterated its 'hold' rating following recent full-year 2007 results which beat the broker's expectations.

Lafite 1998:  06-07.. +91%  v  House Price Index:  06-07..  +7%
Latour 1996: 06-07.. +72%  v  Dow Jones:  06-07..  +14%
Liv-ex 100:   06-07.. +45%  v  Ftse 100:  06-07..  + 9%
CGT - 0% vs CGT- 40%

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Citigroup said it has raised its 2008 estimates modestly and now forecasts full-year 2008 pretax profit of 52.5 mln stg and EPS of 29.3 pence for BSS.
   
Premier Farnell was 5 up at 215 after posting first-quarter results in-line with expectations, with Citigroup maintaining its 'hold' stance and price target of 190 pence in response.
   
In a quarterly statement this morning, Premier Farnell reported a rise in pretax profits to 17.5 mln stg from a restated 16.4 mln earlier, though sales and operating profits were hit by a weakness in the US dollar.
   
Similarly, Qinetiq was 4-1/2 firmer at 201-1/2 held after reporting full-year results that landed at the upper-end of analysts' expectations, with Merrill Lynch repeating both its 'buy' recommendation and 260 pence target.
   
Earlier, the privatised former UK government defence research arm said its underlying pretax profit for the year to March 31 rose by 17.4 pct to 94.0 mln stg on increased revenues of 1.149 bln stg.
   
Among mid-cap fallers, bearish broker comment helped drag Northern Foods lower, 4-1/4 down at 127 as Credit Suisse cut its rating to 'underperform' from 'neutral' following the group's full-year results yesterday.
   
In a note to clients, Credit Suisse said Northern Foods' business is now better focused on growth markets where it has strong positions, but added however that there remains substantial swings in the performances of each division, suggesting the business is potentially volatile.
   
Finally, British Energy lost 11-3/4 at 525-1/4 after announcing that the conversion and sale of up to 450 mln shares in the company by the UK government will result in a 43.1 pence reduction in basic EPS for the pro forma financial year 2006/07, while increasing its net assets by some 2.56 bln stg. 

UK Diary of Events

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Paris shares close higher on Wall St gains, rebound in Asian markets

The CAC 40 index finished up 61.85 points or 1.02 pct at 6,104.00, on strong volume of 8.8 bln euro. Among CAC 40 stocks, 32 closed higher, 1 was unchanged and 6 closed lower. On the Matif, June CAC 40 futures were trading up 60.0 or 1.00 pct at 6,083.0. On the broader indices, the SBF 80 index closed up 81.47 or 1.10 pct at 7,480.87, while the SBF 120 ended up 45.75 or 1.04 pct at 4,464.63.
   
Vinci ended the day up 1.46 eur or 2.55 pct at 58.80, Saint Gobain up 1.57 or 1.96 pct at 81.49 and insurer Axa up 0.58 or 1.82 pct at 32.49.
   
French stocks were lifted by consolidation talk, with Vallourec leading CAC 40 gains to end up 13.38 or 5.96 pct at 237.85 on press speculation of a bid by Russia's GazProm. Vallourec had fallen back in recent sessions after a surge earlier in the year linked to similar speculation, with Arcelor Mittal most often cited as a possible suitor. Arcelor Mittal also fared well over the day, adding 1.48 or 3.43 pct to end at 44.63.
   
EDF closed 1.11 or 1.64 pct higher at 68.93, boosted both by developments in the sector, notably EON's share buyback and investment plans, and ABN Amro analysts' decision to almost double their target for EDF, on the basis of potential for cutting staff and extending the lifetime of nuclear plants.
       
Utilities were also in focus over the day after Belgian investor Albert Frere's holding companies Groupe Bruxelles Lambert SA (GBL) and Compagnie Nationale a Portefeuille (CNP) said they now own more than 5 pct of the capital of Iberdrola SA, rekindling speculation over consolidation moves in Spain.
   
Albert Frere is also the leading single shareholder in Suez, which in turn agreed earlier this month to increase its stake in Gas Natural SDG SA to 11.3 pct from a previous around 5.4 pct. Shares in Suez finished the day up 0.63 or 1.50 pct at 42.75.
   
Elsewhere on the CAC-40, EADS added 0.47 or 2.05 pct to 23.37, boosted by yesterday's agreement to sell Qatar Airways 80 Airbus A350 planes, 20 more than in an initial order, for 16 bln usd.
       
Michelin, meanwhile, rose 2.39 or 2.52 pct at 97.36, after adding as much as 3 pct earlier in the day following an interview with CEO Michel Rollier in Les Echos in which he indicated plans to cut costs by 1.5 to 1.7 bln eur by 2010.
       
Outside the CAC 40, Eurotunnel closed down 0.25 or 18.52 pct at 1.10, after reaching a high of 1.95 eur in morning trade, 5-1/4 times its value before Tuesday's reopening of trade. There was speculation earlier in the day that Vinci might be an aggressive buyer of shares, a rumour which the construction group later firmly denied.
   
Property groups posted strong gains, lifted by Nicolas Sarkozy's planned tax relief for interest paid on mortgages, and by M&A activity in the sector with PAI Partner's acquisition of Kaufman & Broad. Klepierre closed up 5.42 or 3.91 pct at 144.00, Kaufman & Broad ended the day 1.78 or 3.06 pct higher at 59.87, and Nexity added 2.90 pct to end at 67.00.
       
Radio broadcaster NRJ Group gained 0.59 or 4.47 pct, closing at 13.79. Without adding any new elements, La Tribune repeated recent comments by chairman and major shareholder Jean-Paul Baudecroux that he could buy out minorities, but does not have any plans to do so currently. Baudecroux last week denied a story in L'Express that he may sell the company.
   
Bank stocks were among the rare fallers, with BNP Paribas falling 0.40 or 0.44 pct to 90.18.
   
BNP this morning announced its leasing unit has formed a 50-50 joint venture with SREI Infrastructure Finance to finance equipment in India for sectors ranging from agriculture to IT and health.

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German shares close higher, with DAX at seven year high

The DAX closed up 118.07 points or 1.52 pct at 7,883.04, after trading between 7,790.93 and 7,895.71. The MDAX gained 183.90 points or 1.69 pct to 11,054.06. The TecDAX rose 20.94 points or 2.32 pct to 924.15. DAX futures were up 119.00 points or 1.53 pct at 7,896.50.
   
EON shares soared 4.38 eur or 4.12 pct at 122.18 to lead blue chips higher after the utility said last night it had approved a 7 bln eur buyback programme and a 60 bln eur re-investment package.
   
The shares were also aided by the utility's announcement that it now targets an adjusted EBIT of 12.4 bln eur by 2010, implying an annual growth of 10 pct per annum. This compares to market expectations of around 9.8 bln eur by 2010.
   
"We believe these announcements represent a turning point as they demonstrate EON's commitment to fix its balance sheet and its confidence in its capital expenditure growth opportunities," said analysts at Goldman Sachs in a note to clients. Peer RWE advanced 2.42 eur at 84.20, due to higher sector valuations based on EON's bullish targets, dealers said.
   
Infineon gained 0.34 eur at 11.52, after Goldman Sachs added the chipmaker to its 'conviction buy list' saying that its residual businesses are greatly under-valued compared to the sector. The brokerage said that an expected sale of Infineon's stake in its US unit Qimonda would likely be a catalyst to boost share value.
  
MAN was 2.26 eur at 107.84.
   
Deutsche Telekom added 0.07 eur to close at 13.78 after the telecom giant benefited from a upgrade to 'buy' from 'sell' at Societe Generale as the brokerage lifted its price target on the stock to 15.5 eur per share from 11.5 and added it to its 'Premium List'.
   
The company also announced the resignation of Lothar Pauly, the head of its T-Systems unit.
  
Bucking today's trend Altana was one of three decliners which were correcting from recent advances and it fell 0.15 eur or 0.82 pct at 18.14. BMW shares lost 0.11 eur to 49.77, while TUI fell 0.02 eur to 20.20.
   
On the MDAX, GEA Group gained 1.02 eur or 4.44 pct to 23.97 as the top performer. Zapf Creation was the worst performer, dropping 0.17 eur or 2.30 pct at 7.22.
   
TexDAC-listed Software AG was the strongest performer on the index, charging up 3.29 eur or 4.87 pct at 70.86 on takeover speculation following an announcement that its two major shareholders, Goldman Sachs and CMP Capital Management Partners, are examining a possible sale of their interests in the company. FJH AG, on the other hand, was the worst performer, dropping 0.02 eur or 0.70 pct at 2.85.

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Amsterdam shares close higher; Rodamco Europe, BAM lead

The AEX closed 5.38 points or 1.01 pct higher at 540.39, after trading in a range of 538.51-541.64. Government bonds traded lower while the euro stood at 1.3458 usd versus 1.3483 usd late yesterday.
   
Shares ended higher on positive sentiment and investors picking up stocks amid some bargain-hunting following yesterday's losses, dealers said.
   
Rodamco Europe rose 5.75 pct to 110.80 eur while ASML soared 4.96 pct to 19.15 eur after the company said it will return 960 mln eur to shareholders.
   
Arcelor Mittal added 3.43 pct to 44.62 eur while Philips gained 2.97 pct to 31.60 eur after the company said it expects further improvement in its Medical Systems EBITA margin in 2008/09 and reiterated its 2007 full-year guidance for the unit.
   
Heineken put on 1.52 pct to 43.30 eur amid M&A rumours involving market peers InBev and Anheuser-Busch.
   
Decliners were few. TNT shed 0.42 pct to 32.86 eur, Fortis dropped 0.32 pct to 30.90 and KPN shed 0.32 pct to 12.61 eur.
   
Among midcappers, BAM soared 8.55 pct to 22.08 eur after presenting better-than-expected first-quarter net profits and raising its full-year outlook for net profit to 210 mln eur from 200 mln. Heijmans rose 3.17 pct to 44.52 eur on market peer BAM's solid results.
   
Van der Moolen jumped 7.41 pct to 3.77 eur after news market peer A.G. Edwards was bought by Wachovia for 6.8 bln usd, leading investors to speculate on a good price for Van der Moolen in a consolidation scenario, dealers said.
   
Tele Atlas soared 6.74 pct to 16.94 eur on bullish comments and strong gains at competitor Navteq, dealers said. Fugro put on 1.66 pct to 43.55 eur after being initiated at 'outperform' at Exane BNP Paribas.
   
There was only one decliner; LogicaCMG shed 0.41 pct to 2.45 eur.

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