Market Report: Bank guru’s faith causes RBS to leap
Punters with an interest in financial stocks have been avid followers of the banking guru Ian Gordon at Investec, and his latest missive pushed up Royal Bank of Scotland by more than 5 per cent. Mr Gordon’s stance on the taxpayer-owned bank changed from negative – after more than five months as a seller – in March, when he moved to a hold rating. He raised this to a buy earlier in the summer, and now thinks RBS will be a “key beneficiary of last Friday’s strong mortgage data”. (May was the best month since October 2008.)
He thinks RBS’s core retail banking division has enjoyed “sustained growth in mortgage balances throughout the crisis”. He also thinks the move by the Prudential Regulation Authority to change to a 3 per cent capital ratio will benefit RBS.
He has raised his price target to 335p because he thinks it has “further to go”. RBS, which is already up 16 per cent since the end of June, added 15.6p to 320p, and was top gainer on the benchmark index.
Lloyds was dragged up on the better outlook for mortgage lending and a perception of an improved economic outlook. It added 1.71p to 69.44p.
On the blue-chip index, traders were relieved that Chinese data were no worse than expected, despite slowing for the second quarter in a row. The FTSE 100 was 41.17 points up at 6,586.11, continuing last week’s run, when it climbed 2.66 per cent over the week.
Investors dumped the computer software group Sage after several brokers, including Morgan Stanley, reiterated their negative rating on the stock. It finished 10.8p worse off at 356.1p, close to the bottom of the index.
News last week that the Government is investigating the security outsourcers Serco and G4S was followed by a price reduction from analysts at HSBC. They reduced their target price for both, giving Serco a neutral rating with a 635p price target for shares that lifted 4p to 624.5p after it said it will co-operate with the investigation. HSBC rated G4S, which is being investigated by the Serious Fraud Office, a sell, with a 205p price target for shares that dropped 2p to 207.5p.
Burberry beefed up its technology knowhow in the form of the O2 owner Telefonica’s Matthew Key, who joins as non-executive director. Burberry rose 23p to 1,537p.
On the mid-cap index, chat of mergers and acquisitions were not stifled by the heat in the City. After revelations last week that the French power equipment-maker Schneider is in talks to buy the UK engineering group Invensys for £3.3bn, and further news over the weekend that the US giant General Electric might also be eyeing up the business, the City was rife with speculation about who else might want to join the throng.
Invensys has been viewed as a takeover candidate for a long time, so the City has been well-prepared. The Square Mile reheated the idea that Switzerland’s ABB, the US group Emerson Electric and Siemens could all be possible bidders.
Invensys is up more than 23 per cent since the beginning of July, and engineered another 1.5p rise to 509.5p.
Mike Ashley’s Sports Direct International was up 25.5p to 593p ahead of what is thought to be strong full-year results on Thursday.
After reports that AG Barr is considering a £1bn bid for GlaxoSmithKline’s Lucozade and Ribena brands, the Scottish maker of Irn-Bru dripped down 2p to 521.5p. AG Barr’s deal to merge with Britvic collapsed last week.
Thorntons, in its trading statement, reaffirmed that profits for the year just ended will be ahead of City expectations, following an uplift in the volume of chocolates sold to supermarkets, but it dipped 6.5p to 90.5p.
Still on the food theme, traders had an appetite for small cap-listed Hovis owner Premier Foods on the back of vague rumours about a possible bid for the group. Premier, which has been restructuring its debt, selling off brands and closing loss-making factories, gobbled up 6p to 77p.
Corporate governance battles at Aim-listed Gulf Keystone Petroleum with the City investor M&G Investments continued and Gulf slipped 19.5p to 156.75p.
The computer games developer Frontier Developments made its Aim debut and raised £4m. It produced a 27.5p gain to 154.5p on its first day.
Europa Oil and Gas said it has started seismic operations on its 15 per cent-owned licences offshore from Ireland a year ahead of schedule and it jetted 0.25p to 10.5p.
Snap up shares in Supergroup, Canaccord Genuity suggests. The broker thinks the fashion retailer is a “great British success story”, its third-quarter update in September should show strong growth and at “any moment European acquisitions could provide additional growth dynamics”. Canaccord rates the shares a buy with a 1100p price target. They are now at 942.5p.
Flog shares in G4S, HSBC insists. The broker, along with investors, is concerned about the Serious Fraud Office investigation in to the security specialist relating to billing practices for government contracts. It thinks the “broader risk of a contract embargo and/or margin cuts has now been amplified”, and rates the shares underweight with a 205p price target, down from 210p. They are now at 207.5p.
Gold: Capital & Regional
Hang on to property group Capital & Regional, Peel Hunt suggests. The broker thinks that its sell-off yesterday of two shopping centres could increase dividends for shareholders but the sale of other assets may not be as straightforward, so it rates the shares a hold for now with a 35p price target. They are at that level.
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