Market Report: Pension worries finally put the brakes on BT

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The Independent Online

Goldman Sachs yesterday called time on BT Group's extraordinary performance over the past year, leaving shares in the telecoms group as the worst performer in the blue-chip index. BT dropped 5p to 306.5p after the heavyweight US broker urged investors to abandon the stock after a recent review of its pension liabilities.

Earlier this month, BT revealed that its pension deficit had widened to £3.4bn following a long-awaited review of its scheme. Goldman worries that the top-up payments the company will have to make could significantly impact the amount of cash it can generate, and so has a price target of just 239p on the stock.

BT shares have easily outperformed the wider market in 2006. They have risen by 36 per cent over the past 12 months, while the FTSE-100 has gained just 10 per cent. In fact, the telecoms group has been a particularly strong performer during the past three weeks after it upgraded earnings forecasts for its retail unit. It is now targeting double-digit earnings growth in the current financial year at the division, which is three times higher than City analysts were forecasting at the start of the year.

Elsewhere in the telecoms arena, Cable & Wireless fell 0.5p to 157.75p, Vodafone retreated 1p to 142p and Telecom Plus gave up 1.25p to 191.25p.

Meanwhile, the FTSE 100, in its last session of the year, closed 4 points lower at 6,240 as investors locked in gains.

InterContinental Hotels rose 13p to a new all-time high of 1,265p, amid continued hopes that the group will soon be taken over. Citigroup, however, urged caution. It believes the shares, trading at a 17 per cent premium to European rivals, are now fully valued. According to the US broker's analysis, a private equity firm is unlikely to pay the 15 per cent premium on InterContinental's current valuation needed to win control of the hotel operator.

Big cap property companies were in demand ahead of 1 January 2007 when many will convert into real estate investment trusts, or REITs. British Land gained 24p to 1,722p, Slough Estates improved 4p to 796p, and Land Securities rose 36p to 2,317p.

All three have said they plan to convert into REITs at the start of next month, which will allow them to develop, manage and sell property in a more tax-efficient way, in return for a one-off "exit tax" to be paid to the Government.

Mitie Group ticked 7.75p higher to 250.75p as UBS hiked its price target on the support services group to 280p from 245p and urged its clients to move into the stock. The Swiss broker said Mitie continues to enjoy a growth rate double that experienced by the industries it is active in, thanks to its "unique business model".

UBS also got investors interested in Amec, 4.5p higher at 423p. Raising its price target on the stock to 490p from 415p, the broker applauded the company's new strategy. Unveiled by its new chief executive, Samir Brikho, it will see Amec dispose of its construction activities, facilities services and private finance initiative assets and focus on oil, gas, metals, nuclear and environmental consultancy activities. UBS believes that after the group's restructuring, it should enjoy a profit margin of around 6 per cent by 2008, rising to 8 per cent by 2010.

The Manchester-based insurance broker CBG Group held steady at 131.5p, despite two director share purchases. Laurie Turnbull, its chairman, led the way by acquiring 33,000 shares in the company at 130p, while Michael Askew, the chief executive, bought 30,000 at the same price.

Dealers also drew attention to director buying at Netcall, 0.25p stronger at 17p. Henrik Bang, the chief executive of the technology group, picked up 100,000 shares at 17p, thereby doubling his stake.

MicroEmissive Displays improved 4p to 35p after winning its first volume manufacturing order. The deal is worth £2m to the AIM-listed company, and it will start working on the contract in the new year. MicroEmissive is a specialist in making small TV screens.

Finally, Timan Oil & Gas made its debut on AIM. The Russian-based explorer raised £18m of new money by issuing shares at 76p. The stock closed at 84p, giving the company a valuation of around £130m. Timan will use the cash raised to help it start pumping oil from its NGPT field in northern Russia. It also has an 80 per cent interest in two Caspian Sea blocks.