Market Report: Morgan Stanley rounds on 'sickly' DSGi

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The Independent Online

There were few losers on the top tier as the market rebounded in style yesterday. One of the two to end in the red was DSG International after a broker said it could stop generating profits within the decade.

The stock only closed down 0.20 at 146.9p, saved by the wider market fillip, but Morgan Stanley's criticism was scathing. The US broker lowered the Dixons owner's price target by 13 per cent to 135p, saying "we believe DSGi is much more sickly than most investors realise and needs radical surgery to return it to long-term health". It said the share price would take a hit next year and if radical action was not taken profits would dry up.

The FTSE 100 performed strongly, closing up 146.6 points at 6280.7 although traders are still nervous about calling the direction on any given day.

Financial stocks formed a rear guard action, shrugging off last week's wounds to lead the market up. Barclays, which has been on a pr offensive led by Bob Diamond, stormed to the top of the leaderboard, up 4.74 per cent to 607.5p. Northern Rock was not far behind, up 3.79 per cent to 670.5p.

Top riser in the morning was Wolseley after it announced five minor acquisitions. Investors backed the plumber and heating specialist that the bolt-on acquisitions were worth £87m. It closed 3.77 per cent higher at 963p.

Traders said confidence was beginning to creep back into the market. News that Kohlberg Kravis Roberts was to push forward with the refinancing deal to fund its $24bn (£12bn) takeover of First Data calmed a few nerves. Some better than expected announcements helped lead the market up, with Next one of the highest risers. The clothing retailer rose 4.25 per cent to close at 1940p after releasing its interims. Pre-tax profits of £196.2m beat market expectations, following strong performance from its Directory business, and cost savings in retail. The analysts threw their weight behind the stock, with Seymour Pierce upgrading its rating to a "buy", and added it was "one of the cheapest stocks in the sector".

Elsewhere in the sector French Connection was down 12p at one stage, but rallied to close flat at 172p. The group narrowed its first-half loss, although not helped by the weak performance of the menswear division, but said the second half of the year remained challenging.

Never-ending bid story update: Rumours doing the rounds that Carlsberg has told market participants it will not be bidding for Scottish & Newcastle. The brewer rose 5.5p to 621.5p, although there is still no official news. Tune in next time for more developments.

On the mid-tier, JJB Sports took a real thumping after it warned on profits. The group said in a market update its revenues would be down 4.4 per cent, over the tough comparatives with the World Cup last year. The stock was smashed 14.20 per cent on the news, closing at 172.25p. The news helped dragged down peer Sports Direct International, another for the "good while it lasted" department. Mike Ashley's company rallied on Monday after it avoided a profits warning, but closed down yesterday 4.55 per cent lower 131p.

At the other end of the second-string table, Collins Stewart was second-best performer, rebounding from losses the previous day. It bounced from record lows of its own to close at 177.5p, a 6.45 per cent boost.

Babcock International Group was also up after it retained a contract from Network Rail. The stock rose 5.52 per cent to 544.5p after its rail division First Engineering was chosen as one of the four contractors to renew the track. This comes as Network Rail has sliced the number of contractors from six to four in a bid to boost efficiency.

On AIM, Jarvis was also up as it was named among the contractors. The stock closed up 5p at 80p after it retained its contract for plain line, switch and crossing renewals. Bezant Resources rose more than 10 per cent after two rigs arrived to start drilling at its gold and copper projects in the Philippines. It closed at 81.5p.

Ethanol Investments had a topsy-turvy day. Down among the worst performers in the morning as it headed towards delisting, it ended the day as the top riser after revealing it was in talks with a third party. The news of the possible offer at a "significant premium", sent the stock up 37 per cent to 0.18p.

Contentfilm, another group in takeover talks, rose 1.25p to 19.25p after it revalued its library from £54m to £82m. Whispers on the market yesterday said the online advertising group Phorm is set to go on a road show next month. Rumour is it could be bringing news of a tie-up with a major internet service provider along with it. It was up 5p to 2417.5p.

Worst small-cap performer was Andor Technology, which warned that second-half sales would be hit by lower demand for digital cameras in the US. It shed 23.98 per cent to 65p.