Market Report: Bullish brokers give Smith & Nephew a tonic

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The Independent Online

A steady flow of buy orders ahead of Thursday's third-quarter results pushed Smith & Nephew 3.75p higher to 510.75p, helped by a bullish note from broker Lehman Brothers. The shares are now trading at levels not seen since before April's profit warning.

The company generates almost three-quarters of its revenue from wound management, orthopaedic reconstruction and orthopaedic trauma treatments, all of which are expected to show strong growth against last year's numbers. Lehman Brothers expects the group to update investors on its cost cutting programme as well as confirming strong growth driven by new orthopaedic products. Lehman upped its target price for the shares to 540p from 490p.

Bulls of Hanson, the building materials group, are not prepared to give up on the takeover story just yet. News that Australian rival Rinker has rejected an approach from the Mexican cement giant Cemex prompted strong support for Hanson, 16.5p better at 727.5p against a weak market. The word among traders is that Hanson's board would be more open to an offer and that with a market capitalisation only marginally higher than that of Rinker a bid would not break the Cemex bank either.

Also up against the falling market was Standard Life, 4.5p better at 287.5p, as a handful of rumours did the rounds that the French insurer AXA is mulling an offer for the Edinburgh-based life assurance group. The insurance sector stood out on an otherwise forgettable day for London equities, with Prudential 10.5p firmer at 641p and Aviva 1.5p better at 771p. Merrill Lynch reiterated its "buy" recommendation on Aviva with a 900p price target.

In the wider market, London shares were hit by a big sell-off in Asian markets overnight, with the Nikkei index in Japan suffering a fall of more than 300 points. A flat opening on Wall Street failed to give any impetus to the FTSE 100 index, which closed 34.1 worse at 6,126.8. Mining and oil stocks were particularly weak, with BP shedding 10.5p to 591.5p, Xstrata 44p lower at 2,221p and Rio Tinto off 39p to 2,858p.

In the mid market, shares in Qinetiq, the weapons manufacturer, added 6p to close at 188.5p after weekend press reports that the group is poised to win a £10bn contract from the Ministry of Defence. The shares have struggled since a controversial initial public offering in February, and in spite of the strong market yesterday still trade at a discount to the placing price. The MoD is not expected to announce the contract winner until the middle of November, and traders said that the stock is likely to perform strongly if the contract is awarded.

Weekend reports of a merger between struggling online gambling stocks PartyGaming and 888 Holdings was not enough to give the stocks a boost but that is not really surprising since both companies have just lost a large proportion of their customers. 888 confirmed that it is in talks with a handful of third parties, without naming PartyGaming directly, but traders said that even if a deal is done it will not involve much, if any, premium. By the close, PartyGaming was unchanged at 30p, while 888 also closed no better at 108p.

The bounce in Wolfson Microelectronics looks like it might have run out of steam. The broker McCall Aitken McKenzie published a bearish note, reiterating its "sell" advice, contrary to the wave of "buy on weakness" notes published at the end of last week. The shares fell another 12p to close at 292.5p, the worst performer in the FTSE 250 index.

In the small caps, Proteome Sciences found more buying support, 3.5p better at 63p, on the back of an article in Brain, the scientific journal, that seems to give backing to Proteome's technology.

The company is deep in negotiations to commercialise its disease progression technology, which may be able to pick up signs of Alzheimer's disease long before the symptoms become apparent in a patient. Licensing negotiations are thought to be at an advanced stage and according to traders are close to a conclusion.

Finally, the closed circuit television operator Coe Group continues to attract buyers despite the company being at a loss to explain the spectacular run the shares have been on for the last eight weeks. The shares have added an incredible 580 per cent since the end of August - investors are either banking on a bid or someone believes that the demand for CCTV has only just scratched the surface.

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