Market Report: Broker casts a cloud over British Airways

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Investors could have bought shares in British Airways for less than 100p less than four years ago, and anyone lucky enough to have done so is now sitting on more than four times their investment. But there is some potentially nasty turbulence on the horizon, according to the broker Citigroup, which yesterday cut its recommendation on BA from "buy" to "hold".

Although there was some good news for British Airways on Tuesday regarding its falling fuel bill, which Citigroup believes will save the company £100m, the broker believes that there are enough stock-specific issues to warrant the downgrade. The ongoing investigation by the Office of Fair Trading and the US Department of Justice into cartel operations could "surprise negatively", while there is also a chance, albeit relatively remote, that pilots could strike over reduced pension benefits. Add in some highly unlikely takeover speculation and the stock's recent performance, and it is perhaps not surprising that brokers are becoming more cautious over the UK's national air carrier. Shares in BA fell 8.25p to 442p, among the worst performers in the blue chips.

GUS has its last day of trading today before the demerger of the consumer credit rating division Experian. Experian is expected to perform well once it is listed as a separate entity on Monday, and traders bought GUS aggressively, sending the shares 19p firmer by the close to 985p.

The German broker Deutsche Bank cut its price target for the oil giant BP but maintained its "buy" recommendation on the stock. Volume was enormous, with well over 110 million shares changing hands. The company has developed something of an oil industry bogeyman tag in recent months, reporting one piece of damaging news after another and significantly underperforming the sector. The shares added 5.5p to 575.5p on the Deutsche Bank note. Elsewhere in the oil and gas sector, BG Group climbed 21.5p to close at 646.5p as vague bid talk resurfaced, and Shell added 14p to 1,774p.

Confirmation that Tata Steel is mulling a bid for Corus Group plus a record overnight close in the Dow Jones sent the FTSE 100 index back over 6,000 for the first time since May. The London blue chip index closed 38 better at 6004.5. That is still almost 14 per cent short of its all-time high.

Countrywide, the estate agency group that received an approach from 3i three weeks ago, took a tumble as a rumour did the rounds that the private equity group is poised to walk away empty-handed. The word in the market had been that an offer worth 530p per Countrywide share was on the cards. The shares dropped 24.25p to close at 495p, and if the talk proved to be correct there is plenty more downside potential. Meanwhile, 3i rallied 8.5p to 950p.

It has been a grim 12 months for shareholders of Northern Foods, down 1p to 90p, with one profit warning after another knocking the shares back. The broker Panmure Gordon believes that next week's trading statement will not bring any comfort, predicting a sharp fall in pre-tax profits and reiterating its "sell" advice and 70p target price.

News yesterday that Viridian, the Ulster-based water and electricity group, has received a bid approach, made it the third utility deal of the week, following hot on the heels of the buyouts of AWG and South East Water. The announcement sent Viridian shares into orbit, climbing 162p by lunchtime to trade at 1,248p. A small bout of profit taking saw the shares close 135p firmer at 1,221p.

Cape Diamonds hit an all-time low of 97.5p before some buying interest was sparked. The shares began trading at over 230p following a placing in May, and have been in a sharp downward spiral ever since. The stock closed 4.5p worse at 103.5p, having traded at under 100p earlier in the session. Market makers said that a number of buyers came into the stock in the afternoon and the shares could rally from here.

The accounting and finance software group Coda signed its biggest contract to date, worth $4.3m (£2.3m), with at least $1m of revenue to be booked in the current year. The house broker, Bridgewell Securities, increased its forecasts by 10 per cent, and said it believed that the customer is Caterpillar. Shares in Coda surged 35.25p to close at 199.5p, as traders speculated that there could be more good news in the pipeline.

Coe Group surged again on talk of a management buyout, and market makers expect the price to continue to perform strongly. The shares closed 6p firmer at 47.5p.

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