Vodafone led London's top stocks higher on rumours its management is playing hardball over the possible sale of its American business. That, plus renewed optimism about the retailers, helped counter legal worries at Man Group and concern that Microsoft has made inroads into Sage's market.
The FTSE 100 index moved ahead by 38.5 at 6105.6, its registering its second-best closing in more than five years. Gains on the broader indices were more modest, with the FTSE 250 finishing up 3.1 at 10135.
Across the Atlantic, the Dow Jones Industrial Average climbed 38 to 11623 thanks to solid April sales for McDonald's and a broker upgrade of General Motors. But trading was thin in advance of tomorrow's US interest rate decision; the Federal Reserve is expected to hike its base rate by a quarter point for a sixteenth consecutive time, and should indicate whether the next move will be to stick or twist.
For an overview of world markets, click here.
Back in London, Vodafone climbed 4p to 130p amid speculation that Verizon has made an initial offer to buy control of their US joint venture. Press reports this morning claimed that Vodafone has rejected Verizon's offer of $38 billion for the 45 per cent stake in Verizon Wireless and is holding out for $50 billion.
Standard Life, which holds 1.7 per cent of Vodafone shares, said today it supported any moves by Vodafone to sell the Wireless stake, but added that $38 billion would be too cheap. Vodafone itself would not comment.
"We do not expect a $38 billion price tag to move the shares up materially although evidence that the companies are engaging will probably be taken as a modest positive," said Goldman Sachs. It reckoned that such a valuation would leave Vodafone with £12 billion after tax.
Bear Stearns' team calculated that such a deal would be worth 7.8p to Vodafone on a per-share basis. But the US bank argued that the current valuation has already factored in this potential good news without fully incorporating the bad news. "Vodafone would be more exposed to worsening trends in Europe and, as in Japan, is likely to provide only a short term boost to share price performance," it said.
That concern raised a question mark over what Vodafone may do with the proceeds from any US exit. Said Investec: "Vodafone needs to increase its exposure to emerging markets to shift away from its relative over-exposure to the big five European geographies. The alternative - buoying its position in Europe via broadband and fixed line - worries us intensely."
Vodafone is due to give a trading update on May 30, from which a clearer picture on its strategy may emerge. Until then, most brokers going to print today were keeping "hold" ratings.
Track Vodafone shares here.
Sage, was the sharpest blue-chip faller, down 12.75p to 252.5p. That came even after Britain's biggest software maker posted first-half results just above City forecasts and said it expected to see better organic growth in the second half.
The accounting specialist said profit before tax for the six months through March was up 19 per cent at £113.7 million, on revenues ahead 18 per cent at £455.9m. But these headline figures disguised organic revenue growth of just 5 per cent -- lower than its 6 per cent run rate over the past two years. There was also a 9 per cent decline in new licence sales in the US mid-market, where Sage has been squaring off against new product from Microsoft.
ABN Amro still saw the earnings quality "slightly disappointing", with software sales only contributing 2 per cent growth compared with 7 per cent from services. "We expect a small upgrade but note the stock is now trading beyond our target price of 255p," ABN told clients. At 21 times current-year earnings expectations, the valuation "fairly reflects its higher than average services content," it said.
Stay calm, advised the team at Credit Suisse, which argued that the slowdown could be blamed on a release schedule skewed towards the second half.
"Although we would not totally discount the impact of competition we believe that the 9 per cent fall in US mid market new license sales is more a function of implementation delays than any effect from Microsoft," Credit Suisse said. It added that full-year targets "remain very achievable and could carry upside."
For detailed information on Sage, click here.
Elsewhere among the fallers, money manager Man Group retreated 73p to £26.52 after it emerged that its US arm, Man Financial, is facing a lawsuit over its role as a broker to failed hedge fund Philadelphia Alternative Asset Management.
Seeking to recover assets on behalf of PAAMCo investors, the court-appointed receiver charged Man Financial with fraud, negligence and violations of the Racketeer Influenced and Corrupt Organizations Act. It made the claims in a lawsuit filed on Monday in a Philadelphia federal court.
Man Financial responded by saying it "regards the allegations to be outrageous and spurious". It also accused the receiver of "courting publicity" with a "contrived and inappropriate" claim.
The Commodities Futures Trading Commission shut down PAAMCo in June 2005 after a Cayman Islands offshore fund used for trading in futures and options contracts sustained losses of more than $147 million. Paul Eustace, former president of PAAMCo, had told the offshore fund was profitable that year. He agreed a month ago to a lifetime trading ban and to pay restitution to investors.
"Man Financial’s participation in artificially inflating the reported returns of the offshore fund caused investors ... to continue to invest and/or remain invested in the respective funds," the suit said.
For detailed information on Man Group, click here.
B&Q owner Kingfisher ended among risers as UBS added the retailer to its "buy" list. Shares moved ahead 2.5p to 238.5p -- although they stood some distance off a start-of-session high of 245.5p.
Kingfisher was the worst-performing FTSE 100 stock in 2005, with the underperformance continuing this year as sales and profit margins were eroded by competition and doubts about the UK housing market. However, the Swiss broker argued that earnings forecasts should stabilise over the next 18 months, with international business offsetting any further weakness in UK DIY.
Goldman Sachs took the opposite view. It cut Kingfisher to "in-line" from "outperform" in a retail sector note mailed late yesterday, saying the shares are fairly valued at around 250p.
"Kingfisher is a late-cycle stock, and improving housing data is unlikely to affect DIY sales until much later this year," said the Wall Street broker. "Given rising retail costs, price investment, and stronger competition in the sector, we believe the speed of earnings recovery for B&Q will be slower than we originally expected."
UBS conceded that Kingfisher shares, at 21 times current-year earnings, look expensive by normal measures. But it also noted that the stock has found support at around 220p based on its freehold property portfolio and earnings from its international business.
"While this may not be enough to guarantee relative performance, it should provide an absolute floor. Any improvement in newsflow after the Q1s could build on this base level," it told clients. "Early indicators of a recovery in housing transactions, a potential reduction in margin pressure and new management initiatives may mean that medium-term forecasts for the UK, and thus the group, could be near a floor."
Track Kingfisher shares here.
The wider retail sector was aided by official data showing British retail same-store sales surged in April at their fastest rate in more than four years.
Argos owner GUS added 15p to £10.54, while Currys group DSG International added 5.5p to 194p ahead of its year-end update due tomorrow. Some dealers believe will show an early World Cup boost and an improved sales mix, due in part to the group's rejig of its warranties offering.
Deutsche Bank yesterday raised its rating on DSG to "buy", arguing that a boom in flat-screen TV sales may last for three years (TVs account for about 12 per cent of DSG's turnover).
Track today's trading by industry sector here.
Further down the market, Woolworths added 0.75p to 33.5p after Deutsche Bank closed its "sell" recommendation on the stock, which has fallen from 38p since mid March.
"The shares are, correctly in our view, no longer reflecting an expectation of a bid or earnings growth this year," said Deutsche. While the broker expects Woolies' earnings to stabilise in the fiscal year ending 2008 thanks to improved profit margins, it did not have enough confidence in a sales rebound to turn more positive.
For detailed information on Woolworths, click here.
In-line trading proved enough to steady nerves about HMV Group. The retailer, which in March rejected a 210p bid from Permira, said it expects to report profit before tax and exceptional costs for the year through April in the middle of the range of analysts’ expectations, triggering shares to rally by 2p to 174.75p.
But HMV revealed that trading since Xmas has remained poor, suggesting competition has undone the benefit of a recent pickup on the high street. Like-for-like sales are down over 11 per cent at the group's eponymous UK chain in the last 16 weeks and nearly 6 per cent down at Waterstones. That was offset on the bottom line by cost cutting including job cuts at Waterstones head office.
"The market is beginning to give up on HMV again, after the disappointing trading news today, and cost-cutting alone won’t turn things around," wrote Nick Bubb, Evolution's retail guru. But he maintained "add" advice, saying: "we haven’t given up hope on (a second half) recovery and shareholder value creation."
Some company watchers detected a slight softening in tone about HMV's proposed £280 million bid for rival book seller Ottakars (up 7.5p to 326.25p). That opened up the possibility that HMV's spare cash could find its way back shareholders of HMV rather than those of Ottakars.
For more on HMV, click here.
N Brown climbed 4p to 231.5p. The catalogue retailer, which specialises in apparel for the mature or unconventionally sized lady, posted a clean annual profit up 27 per cent to £51.6 million and indicated that current was stronger than the City had been expecting.
Home shopping sales were up 8.8 per cent in the 10 weeks since the start of is fiscal year, with internet sales accounting for about a fifth of revenue. That guidance suggests annual profit is on track to reach around £58 million, analysts said.
Read N Brown's statement here.
On broker watch:
Goldman Sachs cut Halfords to "in-line" from "outperform".
Credit Suisse upgraded Weir Group to "neutral" from "outperform".
Panmure Gordon raised Interserve to "buy" from "hold".
Lehman Brothers rated CSR a new "overweight" with a £15.50 target price. The bank also started Wolfson Microelecronics with an "overweight" and 600p target.
And Merrill Lynch cut Go-Ahead to "neutral" from "buy".
Do you have a comment to make on the markets? Write to Times Online's Business desk at markets@timesonline.co.uk, where we will publish the most interesting e-mails.
This website adheres to the system of self-regulation overseen by the Press Complaints Commission. The PCC takes complaints about the editorial content of publications under the Editors' Code of Practice, a copy of which can be found here.
