Market Report: Carphone Warehouse is a tough call for traders

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The Independent Online

The market seems to be having a tough time making its mind up about The Carphone Warehouse.

Since stunning the market in May by announcing free home broadband for its TalkTalk customers, just about every possible competitor has done the same thing, leaving some traders to believe that Carphone will be unable to compete with larger rivals like NTL and BSkyB. Investment banks seem equally unsure about what to make of the company. Yesterday, Citigroup reiterated its "sell" advice on the stock, along with an unchanged target price of 235p, while Morgan Stanley raised its stance to "overweight" with a 300p target.

Morgan Stanley noted that the stock is now trading at a 15 per cent discount to its value before the broadband strategy was announced. However, one bearish trader said: "That may be true but there wasn't any competition then. It is a great idea, but unfortunately everyone else thinks the same thing, and until there is any real clarity in sign-up numbers and profits, the shares probably deserve to trade at a discount." Even so, Morgan Stanley won the day: Carphone Warehouse added 6.25p to close at 268.25p.

Trading was thin in the blue-chip index as the market winds down ahead of the bank holiday weekend. According to dealers, a lone institutional buyer propped up the healthcare group Smith & Nephew, 12p firmer at 445.25p, while a very bullish note on the insurance giant Aviva from ABN Amro helped the stock to close 9.5p firmer at 736.5p.

Profit-taking hit Anglo American for the second session running, as traders continued to take money off the table in the belief that a break-up bid is a very long shot. The shares lost another 38p, to close at 2,342p, as other mining stocks occupied four of the top five fallers in the blue chips. Rio Tinto fell 89p to 2,640p, and is now more than 20 per cent below its high for the year, while Lonmin shed 82p to 2,740, and BHP Billion, roundly criticised for only returning $3bn to shareholders earlier this week, fell 25p to close at 989p.

In spite of the weak mining sector, the mood across the rest of the market was more upbeat after recent falls, and the FTSE100 closed 9.1 better at 5869.1.

Brokers were mildly underwhelmed by first-half numbers from the bookmaking giant Ladbrokes, and traders said that the group has a lot of work to do if it is not going to disappoint in the full year, particularly with the football World Cup coming in the first half. Even so, the broker ABN Amro reiterated its "buy" advice on the share with a 445p target price, and talk in the market is that the group is still on the look-out for acquisitions. The shares fell 13.75p to close at 382p, while high-street rival William Hill firmed 1.5p to 616p.

Few recent broker notes can have had as big an impact as Wednesday's "buy" note on PayPoint, the electronic bill payment machines operator, from the Swiss investment bank UBS, giving a target of 675p. The shares added another 59.5p yesterday to close at 619.5p, a 119.5p rise since the note was published. The rise is all the more remarkable for PayPoint being a FTSE250 company, albeit one with a tiny free float, which investors should be wary of.

Just behind PayPoint in the FTSE250 leaders was Minerva, the property investment group, after the heavyweight broker Merrill Lynch upped its recommendation on the shares to "buy" from "hold". The US investment bank also reiterated its 360p target price for the shares, adding that it expects results in September to include no nasty shocks. The shares added 13.75p to close at 280p.

Wednesday's grim second warning in five weeks from Blacks Leisure has raised speculation that the group is now vulnerable to a bid. Traders believe that with management credibility at a low there could be several interested bidders, including the usual private equity suspects. The shares fell more than 79.5p on Wednesday, but recovered to close at 395p yesterday, a rise of 22.5p as the market chat focused on a take out price of at least 450p.

Central African Mining, the Congo-based mining group chaired by Phil Edmonds, looks to have done a good job on its institutional roadshow, thought to have finished on Wednesday. The shares continued to attract good support, climbing another 4p to close at 56.5p, helped by short sellers closing positions. Griffin Mining is also thought to have been in discussions with institutional investors this week and climbed 0.75p to 86.75p.

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