Larger companies

In the present uncertain market, the last thing you want to do is to allow investors to become over-optimistic about your prospects.

Such concerns weighed on Associated British Foods (ABF) yesterday after Julian Hardwick, a Royal Bank of Scotland analyst, suggested that the market had become a little carried away about the group’s sugar business.

Mr Hardwick said that although there was broad consensus on the outlook for ABF’s Primark division and its grocery unit, there was some debate about the trajectory of profit recovery in its sugar business, for which the market appeared to be factoring in a significant improvement.

Although Mr Hardwick believes that the sugar division’s profitability should recover, he remains cautious about the extent of improvement, given the drag of higher beet costs and continued tough trading in China. Moreover, he thinks that part of sugar’s potential upside will be offset by negatives elsewhere, including interest and pension credit.

Mr Hardwick said that a surge in optimism surrounding sugar profits has meant that ABF’s shares have outperformed this year and that there was a risk that expectations may be too high. Therefore, he is erring on the side of caution and is downgrading the stock to “sell”, from “hold”. The shares fell 5½p to 768½p.

The FTSE 100 rose 74.96 points to 4,202.13, driven by financials and energy stocks. Friends Provident soared 7.6p to 68p after it rejected a takeover proposal from Resolution, down 2½p at 87¾p. Prospects of a deal buoyed the entire insurance sector, with Legal & General up 4.33p at 54.23p and Aviva 20½p higher at 297¼p, reclaiming some of last week’s losses brought on by dividend-cut and solvency fears.

Firmer metal prices aided BHP Billiton, up 39½p at £13.36½, and Anglo American, which rose 44½p to £16.99. However, Kazakhmys, down 3p at 591p, and Antofagasta, which fell 1p to 587p, missed out on the rally after Evolution advised its clients to sell both miners. The broker believes that first-half copper prices reflected big purchases by China rather than an improving market and thinks that slower Chinese buying and the quieter summer months will see the metal price weaken.

BP rose 10.1p to 471.6p after signing a memorandum with Socar, the Azerbaijani state oil company, for joint exploration in the Caspian Sea.

In the FTSE 250, ITV rose 2¼p to 34¼p after UBS upgraded its rating on the broadcaster to “buy”, from “neutral”, suggesting that the company could gain from switching to a pay-TV model from an advertising-funded one. The broker added that the extension of debt maturities had reduced financial risk and that ITV could also benefit from a management change.

National Express rose 19.2p to 284p amid buying from institutions. The hope is that FirstGroup, up 11.2p at 341p, which had a bid approach rejected last month, may return to the fray at some point over the summer.

• New York: Stocks rose sharply as Meredith Whitney, an influential banking analyst, raised her rating on Goldman Sachs and said that hard-hit Bank of America was inexpensive, given the assets on its books. The Dow Jones industrial average closed up 185.16 points at 8,331.68.

London deal fires up AssetCo

Smaller companies

Shares in AssetCo rose by more than 5 per cent yesterday after the emergency services group signed a deal to provide a back-up fire service for the London Fire Brigade.

The group, which already maintains all frontline fire and rescue vehicles for the service, will provide up to 700 trained contingency staff for five years. The company said that the deal, thought to be worth about £12 million, was the first significant contract of its kind to be awarded by the UK Fire and Rescue Service.

John Shannon, the chief executive, said that the deal demonstrated the group’s ability to compete with the largest companies in outsourcing and that he hoped to win further similar deals. The shares closed at 61½p, up 1p.

Emerald Energy rose 71½p to 632p after the oil and gas explorer confirmed that it had received a takeover approach. The group, which focuses on Syria and Colombia, said that talks regarding a possible cash offer were at an early stage and declined to comment on the price or identity of the potential suitor. Emerald’s shares rose by 10 per cent on Friday amid speculation about an offer at about 750p a share that would value the group at about £470 million.

Shares in Northgate continued to decline, sliding 12¾p to 54¾p, after the van hire group’s poor annual results and discounted rights issue on Friday. Gartmore also disclosed a short position.

Sirius Exploration fell 0.40p to 3.60p after it paid £10,000 to Vizards Tweedie in shares rather than cash for legal services.

Bglobal added 3.62p to 25.38p after the smart meter provider said that it had agreed to accelerate the introduction of the units to business customers of npower.

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