Market Report: Copper players can still shine despite price fall

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The Independent Online

Despite a three-year bull market for metal and a mild sell-off yesterday, the broker JP Morgan still sees more upside left in the sector and believes the market is pricing in a sharp fall in the copper price into equity prices. But JP Morgan sees significant upside in Kazakhmys and Antofagasta, the two purest copper plays in the market, if metal prices hold steady.

Currently, equity markets are pricing in a copper price of $2,300 a tonne, well below JP Morgan's forecast of $2,900 and just over half the current London Metal Exchange's 63-month forward contract price of $4,500. Although JP Morgan upped its price targets for Kazakhmys to 1,452p and for Antofagasta to 534p, it believes that if the valuations are applied to the copper forward price it creates price targets of 2,399p and 986p respectively. Although many observers believe metal prices are artificially high there may be more for investors to hang on for before the market trend turns. Kazakhmys closed 17p worse at 1,178p while Antofagasta shed 1.5p to 568.5p.

After last week's frenzy of corporate activity, traders are busy looking around the blue chips to try to find the next stock to face a buy-out. Judging by yesterday's movements, Morrison Supermarkets look to be back among the favourites as does Home Retail. The former climbed 6p to 335.25p, although some traders believe the private equity industry is unlikely to attempt another food retail takeover following the recent failed bid for J Sainsbury. Meanwhile, Home Retail, demerged from GUS last October, firmed 15p to 483p.

The sugar and food ingredients manufacturer Tate & Lyle has slipped under the radar screens since January's profit warning on slower sales of Splenda. However, the shares have added 20 per cent in the past two months and the word is that confirmation of the sale of its European starch business could come before the end of the week, sending the stock 21.5p to 664.5p. Rivals AB Foods were also in focus, 14.5p better at 947p, as Panmure Gordon reiterated its "buy" advice.

Hanson was the worst performer in the blue chips, 40.5p worse 1,030p, as traders speculated that last week's surge on the back of an approach from German rival HeidlebergCement may have gone too far. The market is expecting a bidding war for the cement and aggregates supplier but some traders believe that the 25 per cent surge in Hanson shares since the announcement may already be enough to give its German suitors cold feet.

In the wider market London traders banked some profits following last week's rush of takeovers, real and imagined. Dow Jones futures also encouraged a bout of selling as Wall Street opened sharply lower on fears over talk of a US interest rate hike later in the week. The FTSE 100 closed 53.3 worse at 6550.4.

Analysts are bullish on prospects for the software group Autonomy on the back of its plans to demerge its Blinx consumer search engine technology subsidiary. Dresdner Kleinwort upped its target price from 700p to 1,000p while Goldman Sachs raised its target to 900p. Brokers are expecting strong demand for Blinx when it lists on Aim in the summer, and Autonomy rallied 34.5p to 800.5p on the positive broker comments.

HMV Group, the music, DVD and video game retailer, was also in demand. Traders were split over the cause of yesterday's 4p rally to 119p, with some talking about private equity interest with others putting the rally down to short covering. The shares are thought to be among the most widely shorted in the market.

Market makers were unhappy about a fund-raising by the financial services group Baydonhill, which secured £524,000 of new financing by selling 9.11 million new shares at 5.75p per share, a 55.8 per cent discount to Friday's closing price. Although the shares fell only 4.25p to 8.75p, one market maker said the shares were placed at "completely the wrong price".

The exploration and production minnow Afren announced the farming-in of the Ofra site in the Niger Delta. Broker Bridgewell Securities expects more short-term newsflow and gave the shares a price target of 75p per share, helping the stock to climb 3.75p to 59p by the close.

Finally, Accys Technologies, the Aim-listed hardwood developer, surged €0.27 to a new all-time high of €3.50 after listed investment group Dragonfly Investments confirmedthat it has bought 260,000 shares in Accys at an average price of €2.50. However, there is some speculation among small cap traders that Accys could announce further deals within the next fortnight.