Speculation about utility mergers and better-than-expected results from Hammerson helped counter a bearish statement from Vodafone as British stock markets made a positive start to the week.
The FTSE 100 index closed higher by 15.4 at 5875.9 -- its best closing level since June 2001. All the wider indices were positive on volume of about 3.1 billion shares (Vodafone accounted for nearly a third).
Across the Atlantic, the Dow Jones Industrial Average was ahead 63 at 11125, helped by a lower oil price and better-than-expected earnings from home-improvement retailer Lowe's. Disney was in the spotlight after Barron's magazine suggested the media group could be a target for Apple Computer.
For more on US markets, click here.
Vodafone slipped 3.25p to 113.75p after it cut the book value of acquired businesses by between £23 billion and £28 billion amid intensifying competition in its German, Italy and Japan.
Price pressure in Western Europe also led Vodafone to cut its target for underlying revenue growth for the financial year ending in March 2007. Turnover would be up between 5 per cent and 6.5 per cent, down from the 6 to 9 percent range it forecast for the current year.
The company added that 2007 earnings per share would be in line with the market consensus, which it claimed was between 10.2p and 10.3p. (That raised a few eyebrows; many in the City had thought the consensus was closer to 10.8p.)
UBS analysts did not care. "We expect only modest changes to consensus EPS and believe the goodwill impairment should not be particularly price sensitive, as the market has largely assumed the historic goodwill to be unrealistic." they told clients.
Citigroup disagreed. It is "tempting to say this is a non-cash non-even for a stock that the market values at a discount to book," they wrote. "However, the reduction in growth assumptions represents a reduction in confidence at the company, or more explicitly an inability to stand by previously bullish assumptions and justify those assumptions to auditors."
Cazenove was equally bearish, cutting its rating on Vodafone to "in-line" from "outperform" and lowering the telecoms European sector to "neutral" from "overweight".
"Vodafone’s revised guidance appears to reflect the current level of competition within its mature Western European markets but does not assume any further deterioration nor much in the way of a future threat from disruptive technologies," Cazenove told clients. "With the risk of further estimate downgrades, it is difficult to see this providing sufficient support for a re-rating of the shares."
For detailed information on Vodafone, click here.
Elsewhere among the blue chips, GUS added 27p to £10.67 on speculation the group could split its retail and credit-checking units apart before the end of the year. The Argos and Homebase owner indicated last year it would separate from Experian but has not given a timetable.
Financial advisers are working towards a December deadline, according to press reports. That tallied with what the the City expected.
Track GUS shares here.
BOC added 17p to £15.20. Linde is in talks about the possibility of increasing its offer for the UK gas group to between £16 and £16.50 per share, Financial Times Deutschland reported citing industry sources. BOC last month rejected a £15 bid from its German rival.
For detailed information on BOC, click here.
Utilities were lifted as sector consolidation continued at pace, with Suez and Gaz de France approving a friendly merger backed by the French government. The move, to create the world's No 2 power and gas company, was intended to fend off a hostile bid for Suez from Italy's Enel.
International Power led the sector, up 10.75p to 295.75p. Scottish & Southern Energy was ahead 17.5p to £11.74 and Centrica added 5.25p to 293p. Scottish Power rose 8p to 593.5p as the weekend press highlighted the possibility it could merge with Scottish & Southern.
Meanwhile, National Grid drifted 3.5p to 610p after confirming a deal to buy New York-based gas utility KeySpan for $7.3 billion. The deal had been widely reported ahead of time, and had pushed National Grid shares to a record high on Friday.
Track today's trading by industry sector here.
Property firm Hammerson was ahead 54.5p to £11.56. It said net rental income increased by 6 per cent like-for-like last year and its portfolio value rose 17.6 per cent. Its net asset value was £12.37 per share, better than the £11.45 had analysts expected.
The result lifted other property developers with British Land up 30.5p to 1231.5p and Liberty International firmer by 27.5p to 1118.5p.
For detailed information on Hammerson, click here.
The rest of the results news was a bit dull.
Pearson reported a 23 per cent rise in full-year profit, helped by a strong educational publishing market and a recovery in advertising revenues at the Financial Times. Shares took on 13.5p to 719p.
The owner of the FT and Penguin books said profit before tax rose to £422 million from £350 million. That was towards the top end of market expectations, which ranged between £390 million and £430 million.
For more on Pearson, click here.
AB Foods inched up 1.5p to 871.5p after it said trading in the current year was "a little ahead" of last year, with growth at its Primark discount store offsetting disappointing sales of bread and sugar. Tough competitive pressures and rising energy prices remain a concern, the firm cautioned.
Track AB Foods shares here.
Alliance & Leicester lost 13.5p to £11.25p even after posting an unexpected increase in annual profits, boosted by lower costs and rising business volumes. The mortgage lender posted core operating profit of £548 million; analysts had expected a flat result at £540 million.
Dresdner Kleinwort cut its rating on Alliance & Leicester to "reduce" from "hold" on valuation grounds. It said that, while recent bid speculation was credible, it had lifted shares to more than 13 times 2007 underlying earnings, compared with a sector rating ratio to 10.
"A&L is a perfectly feasible takeover target with Santander the most likely suitor, though given the stage of progress with Abbey, and other objectives in Italy and the US, 2008 appears more likely than 2006," it said.
Read Alliance & Leicester's statement here.
Glass maker Pilkington rose 2.75p to 161.25p after agreeing to a £2.2 billion takeover by Nippon Sheet Glass, its biggest investor. Directors of Pilkington recommended a 165p-a-share offer from Nippon Sheet Glass after rebuffing two lower proposals from the Japanese company over the past three months.
For detailed information on Pilkington, click here.
Maiden dropped 44 per cent after the outdoor advertising firm said attempts to sell itself had only attracted proposals well below Friday’s closing price.
The group, which said in December it had breached its banking agreements and was considering offers for the company, also said talks with its lenders were continuing. Shares lost 29p to 35.5p.
Track Maiden shares here.
Michael Page took on 7p to 311.5p as Goldman Sachs pushed the recruitment agency's shares to its clients.
"Michael Page remains structurally one of the best positioned companies in the whole of the business services sector, let alone the staffing sector," it said in a morning note. "There are rarely opportunities to buy the stock when it is cheap relative to its peers. We believe now is such a time."
The US broker calculated that Michael Page trades at a 9.7 per cent permium to the European market based on 2007 earnings forecasts. Historically, the premium has been about 20 per cent, it said. Goldman also argued that the stock, which is trading in line with its sector, deserves a higher rating due to its positioning in the clerical and services side of the economy.
Also on broker watch:
SocGen cut LogicaCMG to "sell" from "hold".
UBS cut Autonomy to "neutral" from "buy".
Dresdner Kleinwort cut Alliance & Leicester to "reduce" from "hold".
Dresdner raised LogicaCMG to "add" from "hold".
Teather & Greenwood rated Hunting a "buy" in new coverage.
Peel Hunt raised Ricardo to "buy" from "hold".
Altium switched Raymarine to "add" from "buy" and cut Ricardo to "add" from "buy".
Seymour Pierce lifted Datamonitor to "outperform" from "hold".
Lehman Brothers raised Allied Irish Banks to "equal-weight" from "underweight".
And Deutsche Bank rated 888 Holdings a new "hold" with a 210p target price.
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