Market Report: MFI climbs higher on supply chain success

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The Independent Online

MFI was in vogue once again yesterday after Panmure Gordon declared that the retailer's supply chain problems are behind it and told investors that now is the time to pile into the stock.

MFI was in vogue once again yesterday after Panmure Gordon declared that the retailer's supply chain problems are behind it and told investors that now is the time to pile into the stock.

Last year MFI was much talked of as a target for a private equity buyer but greatly disappointed bulls when, as opposed to announcing a takeover, it issued a profits warning.

Supply chain problems were to blame, which on occasion resulted in customers getting late deliveries, and by December had caused in a fall in orders of 8 per cent.

Panmure was convinced these setbacks are firmly behind MFI and that its UK furniture retail business is enjoying a strong recovery. This, the broker believes, may leave City earnings forecasts for MFI looking far too low and so raised its estimates by some way. Panmure also upgraded its rating on the stock to "buy" from "hold" and set a price target of 170p.

As for Howdens, MFI's building materials unit, it too is doing very well. The broker estimates that like-for-like sales growth at the division is about 12 per cent. MFI finished as one of the best performers in the FTSE 250 yesterday, up 2.5p at 139.75p.

Elsewhere, hedge funds were said to be busy shorting Cairn Energy, down 29p to 1,066p, in advance of today's pre-close trading statement from the oil group. Hedge funds made a lot of money betting against Cairn before its last trading update to the market in December. Then the company disappointed investors and as a result saw its shares drop by about 20 per cent.

The stock has failed to recover and unless it stages an impressive recovery before next month's FTSE 100 review, Cairn is likely to lose its place in the blue-chip index. Today the company will issue guidance about its upcoming full-year results. The focus is expected to be on the performance of Cairn's all-important Rajasthan field in India.

Somerfield added 2p to 188.75p as ABN Amro argued that the company is worth significantly in excess of the 190p a share being offered by Baugur. According to ABN calculations, the company's property portfolio is worth more than the offer price, and so the Dutch broker urged Somerfield's management to reject the takeover bid or, alternatively, advised them to table a higher offer of their own. ABN set a 230p price target on the stock.

Brambles Industries was driven 10.75p higher to 290p by Morgan Stanley, which noted that prices for the pallets the group produces have risen sharply. Brambles' European customers have experienced a 21 per cent jump in prices and this is great news for the company's profit margins. As a result, Morgan Stanley raised its earnings forecasts for Brambles and ushered investors into the stock.

Meanwhile, the FTSE 100 index dropped 5.7 points to 5,053.2 as a subdued start to trading on Wall Street prompted a wave of profit taking in London. Second line stocks were hit particularly hard as the FTSE 250 tumbled 63.3 points to 7,300.0. Among smaller companies, NCC Group rose 10p to 246.5p on rumours that the company is close to securing a sizeable new business win.

White Nile, owned by Phil Edmonds, the former England cricketer,had its shares suspended at 138.5p after announcing that it has acquired a 60 per cent interest in an oil field in South Sudan. White Nile bought the stake from the recently recognised government of the now autonomous region and promised to come back to the City with more details of the deal on Friday.

In the meantime, speculation was rife about how resource-rich the field actually is and how the company plans to finance the purchase. Some talked of the group having to raise fresh cash, possibly at about the 60p level.

Such a scenario would be quite a coup for those who bought into White Nile's float last week, which raised £9m at 10p. There were also suggestions that the South Sudan government might end up with a stake in the company and that the World Bank could end up being involved in the financing exploration.

All this is speculation of course. But on Friday, when the full details emerge, investors who have bought into White Nile at pre-suspension levels will certainly be hoping that the company boasts of having bought into a significant oil find. It simply has to if it is to justify the £200m market capitalisation ascribed to the company at present.

Gladstone added 2.5p to 30p on the back of a number of well-received presentations to City analysts. Over on the lightly regulated Ofex market, Beowulf Gold ticked 0.37p higher to 6.12p on whispers that the miner will today issue a bullish drilling statement.