May 30, 2007

BA and Vodafone brighten the market

The FTSE 100 awoke after the bank holiday weekend in a buoyant mood, boosted by more talk of buyout interest in British Airways and robust results for Vodafone.

The mobile phone giant's shares closed up 8.3p, or 5.5%, to 159.7p after it flagged up good progress in fast-growing emerging markets and posted overall results at the top end of market expectations. There was more support from vague market talk of bid interest from AT&T, helping make Vodafone the day's top performer.

British Airways continued its ascent on Friday's news that a couple of directors and Goldman Sachs had all increased their stakes. That, along with speculation of bid interest in the airline, continued to buoy BA's shares today - they were up 21.5p, or 4.7%, to 482.5p.

This helped the FTSE 100 notch up a 36 point gain to 6606.5.

Plenty of analyst comment provided some of the bigger moves on the market. An upgrade from Deutsche Bank boosted Anglo-Dutch publisher Reed Elsevier. It added 16p, or 2.4%, to 675.5p after Deutsche analysts raised their recommendation from "hold" to "buy".

It was comment from UBS that sent BSkyB shares higher. They gained 20.5p, or 3.2%, to 660.5p after the investment bank said a survey it commissioned showed better than expected market opportunities in pay TV.

British American Tobacco added 47p, or 2.9%, to £16.97 after a positive note from Dresdner Kleinwort, which cited "strong potential" for upgrades to 2008 earnings, cashflow and returns to shareholders.

"We think consensus 2008 earnings estimates will edge up and consensus targets will also be raised further. At 1800p we have one of the highest price targets, and we do not see our target as stretching," said Dresdner's Charles Manso de Zuniga.

However, the FTSE 100's gains were somewhat capped by a fall for pharmaceuticals giant GlaxoSmithKline. It was the FTSE 100's biggest faller, losing 28p, or 2.1%, to £13.06 amid reports that doctors in the US were avoiding its diabetes drug Avandia after a study linked it to an increased risk of heart attack and death.

The negative sentiment spilled over to other drugs companies, with Shire down 8p at £11.64, but AstraZeneca managed to shake off earlier losses by the close to be up 10p at £27.03.

Royal Bank of Scotland was also on the top losers board after the bank's consortium trumped Barclays' offer for ABN Amro with bid proposals valuing the Dutch bank at €71.1bn (£48.1bn). RBS shares dropped 5p to 637.5p while Barclays climbed 13.5p to 733.5p.

Elsewhere in banking, Standard Chartered rose 45p, or 2.8%, to £16.80 after it announced it would launch a private banking service for wealthy individuals with $1m and more in 10 new markets, including Shanghai and London, by the end of June.

In the food sector, Twinings and Ovaltine owner AB Foods was up 6.5p to 932p following the news it was buying Indian food company Patak's.

Meanwhile sugar group Tate & Lyle was up 2.5p to 604.5p - bargain hunters moved in after its shares fell on last week's warning that its Splenda sweetener would manage only a lacklustre growth in profits.

The wet bank holiday weekend aroused some gloomy sentiment around some retailers. Next was down 7p at £22.00, while Debenhams dipped 3.5p to 134p. But embattled SCS Upholstery managed to reverse its morning losses to end up 14.5p, or 5.2%, at 296p. After being hit by a low shopper turnout during the hot Easter weekend, the group had been pinning its hopes on better conditions over the May bank holidays.

Among the midcaps, plumbing specialist BSS Group fell back despite a 28% leap in pre-tax profits to £47.3m in the year to March 31. The shares slipped 4.75p, or 1%, to 487p as traders cashed in on a 50% rise over the past 12 months.

Dairy Crest was the FTSE 250's biggest faller after it confirmed reports it was having to recall packs of Clover spread because of mould. The group said it was too early to quantify the financial impact of the recall but it expected the costs to be covered by insurance with an excess of around £1m. Dairy Crest's shares were down 24p, or 3.4%, at 677p.

On Aim, software specialist Zoo Digital jumped almost 20% after the group unveiled a deal with toymaker Mattel to make a range of DVD games, including a High School Musical DVD board game. It did not reveal what the deal was worth but Zoo's shares rose by 5.5p to 37p.

Elsewhere on the junior stock market, TV company Shed Productions edged up 1p to 96p on the back of its half-year results. Roddy Davidson at Altium Securities flagged up Shed's positive outlook statement alongside the results.

"These cap a fairly challenging first half during which the prime objective has been to replace the contribution from two large shows, Footballers' Wives and Bad Girls, that were decommissioned last year," he said in a research note. "A first pass analysis suggests that this objective has been largely achieved, with turnover ahead by 4% on a like for like basis."

Biofuels Corporation was headed in the other direction, down 4.5p, or 27.7%, at 11.75p after it said it was consulting Barclays about ways to restructure its debt. It warned shareholders that given debt was around £100m, any restructure would mean they would "very likely see their shareholding significantly diluted". In addition, any restructuring could lead the company to seek a cancellation of its listing.

Britain's biggest maker of biodiesel suffered a big blow to its share price in March after it warned full-year figures would be well below expectations.

By Katie Allen


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