Morrisons Supermarkets shares were in demand on hopes the grocer's fortunes are set to improve, while 3i was lifted by talk of bid interest and cash returns. A positive morning on Wall Street helped benchmarks erase earlier losses.
The FTSE 100 index ended higher by 14.7 at 5872.4 -- despite being hobbled by BP and Rio Tinto trading without rights to their latest dividends. The wider indices showed similar gains on above-average volume, with more than 3.3 billion shares exchanged by the close.
Across the Atlantic, the Dow Jones Industrial Average rallied around 70 to 11140 after a report showed core consumer prices rose in line with expectations. That gain recovered all of yesterday's 46-point retreat, which came after minutes from the latest Federal Reserve meeting said that "some further policy firming" might be needed to keep inflation pressures contained.
For more on US markets here.
Leading London markets, William Morrison added 13.5p to 210.5p as hopes of a change in fortunes for the supermarket chain led Swiss broker UBS to raise its rating on the stock to "buy" from "neutral". Morrison has struggled ever since buying Safeway thre years ago.
"We believe the market is underestimating the company's sales potential," UBS told clients. "The Christmas trading update provided tentative evidence that the core Morrison business is showing signs of recovery and that the second-year store conversions have resumed top-line growth. Even though the food retail market remains intensely competitive, there should be opportunity to take share from the weaker players."
For Morrison's fiscal year ending 2008, the broker raised earnings estimates to 20 per cent above the City consensus. That was based on stronger sales growth, improved profit margins and cost control.
UBS set a target of 240p for the shares.
"At this level, the share price is supported by the company’s freehold assets, whilst more encouraging newsflow could suggest consensus earnings upgrades based on the Morrison brand’s stronger sales potential."
UBS's upgrade comes ahead of Morrison next month revealing details of its restructuring programme, which will lay out how the group intends to reposition itself and maximise profit margins. The Swiss broker's optimism was not shared by everyone in the City.
"In a tougher market with rising costs, Morrison may find itself constrained in what it can deliver," said the SG Securities team following to a meeting with management. The French broker repeated a "sell" rating on the stock, which it reckoned offered the "highest valuation but lowest scale benefits in the sector, plus the riskiest path to recovery."
The SG analysts were concerned that, following the conversion of Safeway property, the group's eponymous stores are of hugely variable quality. This "must be addressed if Morrison is serious about competing on a national level", SG argued clients. It therefore expected to see more capital expenditure and business disruption in the coming year.
Moreover, the SG team did not expect that the March statement would provide clarity: "Either Morrison will not go far enough in setting out its visions for the future, in which case a lack of detail will disappoint the market, or the new plan will be too radical, and therefore likely to change substantially under a new CEO when Bob Stott departs later this year."
For detailed information on Morrison, click here.
3i Group took on 55.5p to 970.5p, on talk that the investment house last month rejected a £6 billion offer from a European rival. That would be equivalent to about £11 a share. (3i would not comment, as is its policy on such matters.)
Interest in 3i from a private equity peer would be no surprise, given the stock market values the stock at little over net asset value. Equally, it would be no surprise if 3i's new management team of Philip Yea and Simon Ball -- chief executive and finance director respectively -- were keen to reap the benefit of the group's increasingly mature portfolio of investments.
About two-thirds of 3i's current investments are expected to reach maturity within the next three years. This month's stake sales of information group Williams Lea and drugmaker Betapharm will likely be followed next year by flotations of Renta, Vonage and Magix.
This building momentum comes at a time of buoyant equity markets and limited reinvestment opportunities. Many investors therefore see the stock as carrying lower risk than usual. They also foresee a larger proportion of the cash generated by the realisations coming back to them.
Merrill Lynch, viewing 3i as a specialist lender rather than a conventional venture capitalist, has a target price of £10.50 on the stock.
For detailed information on 3i shares, click here.
Elsewhere on the leaderboard, Anglo American took on 57p to £21.99 after it posted a 39 per cent increase in full-year earnings, better than analysts' expectations. The miner also raised its capital return plan to $1.5 billion from $1 billion.
For more on Anglo's results, click here.
Rexam, the world's biggest maker of beverage cans, rose 22.5p to 525p after it posted full-year profit of £309 million, towards the top end of market expectations. Management said it should be able to cope with higher materials prices through cost savings and price hikes.
Rexam shares had underperformed in the run-up to the results on worries that input costs would put a dent in 2006 forecasts. Analysts reckoned today's statement was enough to keep estimates unchanged, triggering the rally in the stock.
Read Rexam's statement here.
Cable & Wireless added 1p to 107.5p after confirming that it is in talks to dispose its 20 per cent stake in Bahrain's Batelco. The stake is currently valued at £360 million and is seen as non-core given C&W does not have full control of the business.
C&W did not mention what it would be doing with the proceeds. The most likely use, according to company watchers, would be to pay down the group's pension deficit: the hole currently exceeds £200 million and is seen as a major hurdle to the company being sold or broken up, as change-of-ownership agreements would trigger a mandatory contribution to the fund.
The next news for C&W shareholders will likely come on February 28, when a trading update is due. The statement will be management's first chance to rebuild investor confidence after a stalling UK business triggered two profit warnings.
"This proposal is a small step in the right direction," said Dresdner Kleinwort, which repeated "buy" advice. "Although it does nothing to address management's key concern ... it does facilitate a takeover which we consider to be the most likely route to shareholder value creation."
However, other analysts qusestioned why C&W needed to raise the cash in the first place, given it has an estimated £1 billion in reserve and the Batelco shares were providing a reliable dividend income.
One possibility, speculated Investec, is that C&W's pension hole is even larger than investors currently believe. Cazenove's team guessed that the balance sheet could require another cash injection to fund UK restructuring.
Read The Times report on C&W's plans for Batelco here.
A continued warm response to yesterday's results from Barclays sent its shares up a further 18.5p to 664p. Takeover speculation also popped up, as it is wont to do: some traders were talking about US interest for Barclays Global Investors, the lender's money management division.
Morgan Stanley reckoned Barclays Global Investors could be worth £10 billion alone against the bank's market value of £42 billion. Stripping that out, that prices the core lending side of the business at just 9.6 times forward earnings, making it "the cheapest bank in Europe", the broker said.
For detailed information on Barclays, click here.
AstraZeneca provided another story to excite the speculators. Shares of the drugmaker traded up 38p to £26.45 amid talk it could be a target for Switzerland's Novartis.
Track AstraZeneca shares here.
Kazakhmys was the biggest faller on the FTSE 100, with shares in the Kazakhstan-based copper miner down 21p to 903p. Sentiment was not helped by the growing scandal in Central Asian country over the murder of a high-profile opposition politician. The head of the KNB national security service yesterday quit over allegations that his agents were involved in the February 11 killing of Altynbek Sarsenbaiuly.
A more specific negative for Kazakhmys stock came from Vladimir Kim, its chairman, who reportedly said he does not intend to increase the group's free float.
Mr Kim holds nearly 40 per cent of Kazakhmys, with Yong Keu Cha, the general manager, holding more than 15 per cent and Oleg Novachuk, finance director, holding 11 per cent. This concentration of ownership places a significant hurdle in front of any potential predator.
Speaking on the fringes of an investor conference in London, Mr Kim also told Reuters news agency that he expects China to provide only around half of Kazakhmys's sales this year. Chinese sales have accounted for between 60 per cent and 80 per cent of the group's turnover in recent years.
See directors' dealings in Kazakhmys here.
Elsewhere in the resources sector, Xstrata added 8p to £17.46 as the door opened for a possible counterbid on Falconbridge, the Canadian nickel specialist that is subject to a $12.5 billion offer from compatriate Inco.
Inco was today forced into extending the deadline on its Falconbridge bid as it awaits approvals from US and European competition authorities. The $34 Canadian offer will now close on June 30 instead of February 28.
Xstrata holds just over 20 per cent of Falconbridge shares, having paid $28 Canadian last year to buy a stake from asset management company Brascan. If Xstrata chose to make an offer for the remaining shares before May 15, it would have to pay Brascan the difference on its former stake.
Assuming a bid at $34 Canadian, the Brascan premium would cost Xstrata an extra $620 million. After May 15, it would cost nothing.
UBS was in favour of Xstrata making a counterbid, saying an all-cash offer would be a "transforming" deal that would add 16 per cent to earnings. However, it still reckoned Inco was in pole position to take Falconbridge, as it has greater synergies and has agreed a $320 million breakup fee.
For detailed information on Xstrata, click here.
Leading the midcaps, Body Shop jumped 23.5p to 247p in what were at times shambolic dealings. The advance was triggered by gossip about a management-led buyout for the ethical soap seller.
Body Shop denied the rumour, while no traders could identify the genesis of the story.
Track Body Shop shares here.
On a more fundamental tack, Morgan Sindall added 43.5p to 1145.5p after full-year profits from the construction group came in ahead of expectations, at £40.3 million on an underlying level. Management provided a bullish outlook, particularly for its office fit-out and affordable housing divisions.
Track Morgan Sindall shares here.
Croda recovered from an early fall to close the day at record highs, up 8.5p to 500p as the company used a confusion-created weakness to buy back its own shares.
The group, which refines wool grease for use in cosmetics and medicines such as Lorenzo’s Oil, posted a pretax profit of £49.2 million. That was below the market consensus of £50.3 million but included a £2.1 million charge against a discontinued joint venture.
During the shares' initial knee-jerk decline, Croda picked up 50,000 issues at prices between 455.5p and 490p.
For detailed information on Croda, click here.
Morgan Crucible was on the fallers list to broker-inspired profit taking, down 8.5p to 228.5p. The maker of industrial ceramics, carbons and foundry products posted 2005 operating profit of £55.4 million, matching expectations, and paid out a dividend that, at 2.5p per share, was 1p ahead of forecasts.
Citigroup cut its rating to "hold" from "buy": "Morgan continues to make strong profit progress in terms of margins and growth, but the current valuation already reflects a lot of the progress to date," it told clients.
For detailed information on Morgan Crucible, click here.
Mr Kipling owner RHM slipped 5.25p to 281.25p on talk that Doughty Hanson, its second-largest shareholder, has been looking to reduce its stake after a lock-in agreement expired late last month. The venture capital fund, which holds 26.1 per cent of RHM shares, had been barred from selling since the group's flotation in July 2005.
For detailed information on RHM, click here.
Rotork dropped 21p to 729p. Shares of the valve and instrumentation maker had climbed from 669p since the start of the year, and are up more than 50 per cent over the past 12 months.
"We believe that the share price has now reached levels that are unsustainable," said UBS, which cut its rating to "reduce" from "neutral". "We are confident that 2005 estimates will be exceeded next week, and expect consensus upgrades for 2006 and beyond. However, we are unable to envisage with any confidence a scenario in which the upgrades are sufficient to reduce the valuation to levels that can be sustained."
Track Rotork shares here.
Also on broker watch:
Deutsche Bank cut Go-Ahead to "hold" from "buy" and upgraded Hays the opposite way.
UBS raised Henderson Group to "buy" from "neutral" and made the opposite call on BetonSports.
And Goldman Sachs hiked Eircom to "in-line" from "underperform".
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