Market Report: AB Foods gets fatter despite Goldman warning

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The Independent Online

Despite a surging share price over the past year, opinions are split on the prospects for Associated British Foods, the cut-price retailer and manufacturer of sugar products.

Goldman Sachs believes the stock's days of outperforming the index are over, at least for the time being, citing reduced profits from sugar operations and caution on the rapid expansion of the Primark business. Goldman cut its price target for the shares from 875p to 835p. UBS, on the other hand, thinks there is more upside left in the stock, and reiterated its "buy" recommendation on the shares with a 1,015p target. The Swiss investment bank believes trading at Primark is ahead of budget and that sugar profits will see a "significant recovery" after 2007. UBS came out on top as investors continued buying AB Foods, the shares closing 11.5p better at 855.5p.

News that ScottishPower has received a bid approach put a utility sector that many traders already consider frothy into overdrive. Traders said the ScottishPower bidder is more likely to be a consortium of private equity houses rather than a trade buyer after German utilities RWE and E.On denied involvement. Shares in ScottishPower soared to 798p in early deals before closing at 730p, 58.5p better, after a bout of profit-taking. Scottish & Southern Energy, still touted as a potential merger play for ScottishPower, added 64p to 1,410p, while National Grid was up 14.5p to 686.5p.

The Democrat landslide in Tuesday's US mid-term elections was taken as bad news for pharmaceutical stocks, although analysts played down the fact that all three FTSE 100 pharmaceutical groups backed the wrong horse. About three-quarters of UK pharmaceutical political donations in the US went to the Republican Party, and despite what is now, in effect, a hung government, investors generally view a Democrat government as a negative for the industry. AstraZeneca fell 64p to 3,162p, GlaxoSmithKline shed 23p to 1,404p and Shire Pharmaceuticals closed 7.5p worse at 979p.

BT Group found plenty of buying support before today's results, adding 3.25p to 291.75p, a five-year high. Analysts are forecasting strong growth in its information technology operations and some good news on broadband provision.

London shares were broadly flat as investors took the Democrat victory to be of little short-term consequence to global markets. New York shares were marginally lower in early trade, giving little incentive to London investors to make a move either way. The FTSE 100 closed 5 points worse at 6239.

It was not all grim news in the mid-cap technology sector, as Cable & Wireless added 5.5p to 156.5p on results slightly ahead of consensus forecasts. US investment bank Bear Stearns noted the re-rating the shares have enjoyed over the past six months looks set to continue.

The mid-market brewing sector was in focus again after Tuesday's bid talk surrounding Wolverhampton & Dudley. The word in the market is that private equity groups and trade buyers are running the rule over the Black Country brewery, and traders are talking about a possible 1,800p take-out price. The shares added another 17p to close at 1,527p. Mid-cap rival Greene King closed 17p firmer at 1,056p.

In the small caps, there was good support for mining investment group Palmaris Corporation, 2p better at 14p. The company is the second largest shareholder in Mining Scotland, which bought the Scottish assets of the UK Coal Board when it was privatised in 1995. Investors are speculating that there is a similar property play with Mining Scotland as has been revealed, although it is likely to be far lower in value than the £800m revealed by UK Coal.

Shareholders of AIM-listed Sky Capital are braced for the worst after the shares were suspended following an FBI raid on the company's Manhattan offices. The shares were trading unchanged at 16.5p when the suspension came.

It was another grim day for shareholders of Zambezi, which fell 24 per cent on Tuesday after the resignation of its chief executive Paul Rankine. The shares took another pounding, closing 2.75p lower at 5.25p.

Flightstore came down to earth with a bump, losing 0.35p to close at 0.32p after the shares returned from a short suspension. As expected, the company confirmed a reverse takeover by a group called The Concert Party, led by former market maker Chris Potts, but will raise £200,00 of new cash via a placing of 2 billion new shares at 0.01p.

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