Market Report: Land Secs climbs on hopes of recovery

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Hopes of a recovery in the London office market helped Land Securities stand out in an otherwise lacklustre market last night.

The commercial property group saw its shares firm 13.5p to 660.5p after Bank of America Merrill Lynch weighed in, highlighting the opportunity in the capital's office market. Unlike retail property, which tends to respond to consumer trends and to the local economy, the London office segment is "much more geared" to capital markets, the broker said. In other words, continued buoyancy in the capital markets should aid the recovery in the capital's office market.

Land Securities, which recently lured Robert Noel, the former Great Portland Estates property director, to head its London business, is well placed to make the most of this turnaround, with around 45 per cent of its portfolio exposed to the office market.

"It has two large development schemes (Park House, W1, and Selborne House, SW1) it could push ahead with, if the timing is right," Merrill said. "Furthermore, it has around 200, 000 sq ft of office space at New Change [in the City] to let, which completes in the second half of 2010. With limited completions forecast for 2010-11, the timing of New Change could work in Land Securities' favour."

In keeping with its assessment, Merrill abandoned its negative stance on Land Securities, moving the stock to "neutral" from "underperform". The broker also revised its stance on Hammerson, which gained 2.4p to 424.4p after being moved to "buy". Great Portland Estates, which, like Land Securities, was moved to "neutral" from "underperform", closed at 271.2p, up 3.6p.

Overall, the FTSE 100 hardly moved, edging up 14.45 points to 5257.85, with traders expecting the market to remain range-bound until Friday's GDP numbers. The mid-cap FTSE 250 index went the other way, retreating to 9421.04, down 65.24 points.

On the upside, Tesco rose to 392.45p, up 8.95p, following a push from Nomura, which reiterated its "buy" stance, with a revised 526p target price, compared to 405p previously. "In our view, Tesco can be defined as a disciplined, defensive, sustainable growth story that is significantly undervalued by the market," the broker said, estimating that over the next five years, the supermarket giant will grow to the extent that it will, in effect, "create a 'new business' worth nearly 44 per cent of the current enterprise value".

In the banking sector, investors welcomed a positive earnings report from Morgan Stanley, which posted $757m in third-quarter earnings. Lloyds Banking Group was in focus, closing at 91.5p, up 0.15p, as a new report suggested that regulators were moving closer to approving its proposals to avoid the Government's asset protection scheme, with traders anticipating a possible capital raising. Barclays was 1.2p ahead at 364.94p, while the Royal Bank of Scotland lost 0.75p, to 45.83p.

HSBC, up 9p at 703p, and Standard Chartered, up 25p at 1,585p, were the subject of a new Exane BNP Paribas circular, with the broker highlighting the fact that the latter's price/book premium over the former "is low relative to recent history.... [It] does not appear to reflect Standard Chartered's relative status as a pure play on emerging markets without the legacy issues in North America, which are still a material part of the HSBC investment proposition," Exane said.

Further afield, the house builder Redrow, up almost 7 per cent, or 10.2p at 158p, drew strength from a round of upgrades, with both Citigroup and Panmure Gordon moving the stock to "hold" from "sell" on valuation grounds. Panmure also weighed in on Persimmon, moving the stock, which closed at 449.5p, up 4.2p, to "buy" from "hold".

"We do not believe that Persimmon will undertake a highly dilutive fundraising as seen at Barratt, Redrow and Taylor Wimpey," the broker said. "Debt remains at comfortable levels and it has sufficient land in place to satisfy its build requirements for a number of years."

At the close, Barratt Developments was almost 3 per cent, or 4.8p, weaker at 160.3p. Taylor Wimpey, which was the subject of some positive commentary from Cazenove, ended 0.29p higher at 43.79p.

Elsewhere, the recruiters Michael Page International and Hays were hit by the read across from the Swiss staffing giant Adecco's bid for American rival MPS Group, which Cazenove analysts said may have implications for competition in the UK.

"We are somewhat concerned that Adecco may push more aggressively into the main UK permanent market, potentially using [MPS Group's] Badenock & Clark [arm], a UK competitor of Michael Page and Hays," the broker said, highlighting the fact that Badenock was currently the UK's number three public sector recruitment company, two places behind Hays, which is is number one.

The concern overshadowed comments from Evolution Securities, which initiated coverage on Hays with a "buy" recommendation, saying that the group's productivity was on an "upward trend". At the close, Hays was 4.7p behind at 105p, while Michael Page was 9.9p lighter at 356.3p.

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