Market Report: Morgan Stanley aids Smith & Nephew recovery

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The Independent Online

Smith & Nephew received a welcome boost from Morgan Stanley ahead of its third quarter figures this week.

Smith & Nephew received a welcome boost from Morgan Stanley ahead of its third quarter figures this week. The US broker yesterday urged investors to start building positions in the stock and suggested that although Thursday's numbers from the group are unlikely to excite the City, S&N's fourth quarter results, due early next year, would. Investors certainly took note of Morgan Stanley and chased shares in the medical devices group 13.5p higher to 476p.

Things have not been going too well for the healthcare group of late and to blame was a weak second quarter. Following the disappointment, the company's market valuation has tanked; it is down about 25 per cent from its July high. But Morgan Stanley is convinced there are better times ahead for S&N and so set a 542p price target on its shares. It believes that investors should not worry too much about the group's forthcoming figures, noting that the autumn period is always a quiet time for S&N.

However, earnings should really start to motor in the run-up to the end of the year. "We expect strong fourth quarter results and believe that company guidance for mid-teens earnings per share growth is achievable," Morgan Stanley said. Key to S&N growth is the performance of its orthopaedics division, which the broker believes will enjoy sales growth of 9 per cent over the next five years, along with improving profit margins.

Meanwhile, the FTSE 100 index roared 49.6 points higher to 4,673.8, with the mining sector staging an impressive comeback after last week's weakness. Rio Tinto gained 20p to 1,444p, Anglo American improved 24p to 1,218p, Xstrata rose 9p to 854p and BHP Billiton added 14p to 567.5p.

Mitchells & Butlers, up just 0.25p to 285p, was held back by a downgrade from Panmure Gordon. Cutting its rating to "hold" from "buy", the broker argued that the momentum which has pushed shares in the bars group 15 per cent higher over the past two months will be difficult to sustain. Manchester United jumped 5.25p to a fresh high of 285.25p on hopes that Malcolm Glazer could be about to return with an improved offer.

Over the past few weeks, scarcely a day has gone by without bid rumours surrounding Sainsbury's, and yesterday was no exception. The supermarket group gained 9.5p to 267.25p, with traders speculating about the likely intentions of Allan Leighton. Some suggested that the ex-Asda boss had already approached the Sainsbury family, who own 38 per cent of the struggling retailer, regarding a possible deal.

Numis Securities told its clients to short jewellery retailer Signet ahead of its third quarter sales figures on Thursday. The broker believes they will disappoint because of a slowdown in trading at the group's US outlets. Signet, up 0.75p to 107p, generates three-quarters of its earnings from across the Atlantic, where consumer confidence seems to be waning at present. Profits at the group will also be hit by the renewed slump in the value of the dollar.

Gossips were keen on Dimension Data, down 0.5p to 29.5p. The South African computer networks specialist is due to announce results on 17 November, and according to yesterday's dealing room talk the figures could contain some positive surprises for shareholders. Analysts at Altium Securities are a little more cautious. They expect the results to be something of a mixed bag, with solid revenue growth from Dimension in the US, UK and Australia and slower than expected progress in Africa, continental Europe and parts of Asia.

Hit Entertainment lost 1.25p to 226p as last week's bid speculation waned. Nevertheless, Dresdner Kleinwort Wasserstein upgraded the children's character group to "add" from "hold" and told its clients that the worst is now over for the company, which has seen its shares slide over the past 12 months. Dresdner was particularly excited about Hit's recent deal with Comcast.

Chemring added 9.5p to 400p after news of what brokers described as a "substantial" contract win from the US Department of Defence. The deal is worth an initial $18m to the company, but could grow to more than $100m by 2008. Lower down the pecking order, Dicom gained 5p to 787.5p on talk of strong trading at the software group. Synergy Healthcare added 5p to 350p as traders bet that an upcoming trading statement from the company will impress.

Axis Shield jumped 10.5p to 211.5p as the City awaited the launch of the biotech company's Afinion blood test product later this month. The equipment will allow blood tests to be conducted in doctors' surgeries and produce almost immediate results. Axis Shield also hopes to soon be able to sell it to pharmacies such as Boots.

Market Movers

↑ BAE Systems 243.25p (up 5p, 2.1 per cent). The group is said to be close to securing a combat vehicle order from the Dutch defence ministry worth up to €900m.

↑ Icap 247.5p (up 13.5p, 5.8 per cent). Boasts that volumes in its electronic broking platforms reached record levels in the third quarter.

↑ 114p (up 2.5p, 2.2 per cent). Continued stake building speculation drives the stock higher.

↑ Balfour Beatty 277p (up 5.75p, 2.1 per cent). Says it has started work on a £400m contract to build the world's largest shopping centre.

↑ Burren Energy 454.5p (up 8.5p, 1.9 per cent). Traders await drilling update from the oil explorer.

↑ Cheerful Scout 0.75p (up 0.10p, 15.4 per cent). Says it has made significant progress with trading in the first three months of its financial year.

↑ Charteris 29p (up 3p, 11.5 per cent). Buys Cedalion, an Edinburgh-based technical consultancy, for £3m.

↑ ID Data 2.5p (up 0.25p, 11.1 per cent). Issues £250,000 of unsecured loan stock.

↑ Johnston Group 432.5p (up 32.5p, 8.1 per cent). Ennstone's offer for the group becomes unconditional.

↓ Hays 119.5p (down 9.25p, 7.2 per cent). Completes the demerger of its DX Services mail business.

↓ Marconi 518.5p (down 11.5p, 2.2 per cent). Mike Donovan, chief operating officer at the group, resigns.

↓ PZ Cussons 1,415p (down 25p, 1.7 per cent). Complains of toughening trading conditions at its AGM.

↓ Orbis 5.25p (down 1.5p, 22.2 per cent). Investors worry about the group's massive debt burden.

↓ Razorback Vehicles 15.5p (down 4p, 20.5 per cent). Indicates that it will require new funding over the next year for marketing purposes.

↓ Thus 13.25p (down 0.25p, 1.9 per cent). News that the group has won a deal to upgrade the telecoms network of the Scottish Prison Service fails to excite.

↓ Tower 8p (down 1p, 11.1 per cent). Profit-taking after recent strong gains.