Market Report: ABF defies Gap profits warning to rise to top

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The Independent Online

Many of the clothing retailers may have been wearing red after the rising cost of cotton led sector giant Gap to issue a profit warning, but Associated British Foods (ABF) was still top of the blue-chip index last night on hopes the problems facing the company are about to ease.

The Primark-owner, which also produces sugar and owns a number of food brands including Ryvita, jumped up 33p to 1,090p as Exane BNP Paribas raised its rating to "outperform". Pointing out in recent months it has been one of the worst performing stocks, the broker said many factors – including issues with its crops and consumer pressure in the UK – had "conspired to put ABF at the heart of an unprecedented storm".

However, Exane's analysts – who raised ABF's target price by 130p to 1,170p – said the "grey clouds will start to disappear and life should start to feel rather better," adding that they are particularly enthusiastic about the opportunities for Primark in Germany.

Although the budget fashion chain is just one part of its business, traders expressed surprise at its advance given the fact that Gap missed expectations with its first-quarter results, released late on Thursday. Blaming the increase in cotton prices, the fashion retailer said its net income had dropped nearly 25 per cent and lowered its full-year profit forecast by 22 per cent, prompting Next to decline 42p to 2,226p while Marks & Spencer eased back 1.1p to 398.8p.

Overall, it looked as if the FTSE 100 was going to bank a third consecutive session ahead, but Fitch's decision to cut Greece's credit rating by three levels to B+ gave investors an excuse to cut their risk before the weekend, leaving the index 7.5 points lower at 5,948.49.

The news it had agreed a settlement with Moex, its partner in the Macondo well, that will see it receive $1.1bn over the Gulf of Mexico disaster meant BP climbed 12.1p to 460p as the payment raised hopes others could follow.

The oil giant was also driven forwards by Investec, which recommended "a radical, full demerger of BP to close the acute discount to our view of fair value". The broker, which changed its rating to "buy" from "hold", suggested the company could be split into three parts while not destroying its " trading business nor the synergies of integration in markets like Midwest refining". It also warned that if BP did not find a way to strengthen its share price, it end up being an attractive target for Russian, Chinese or Indian aggressors.

On its second day of conditional trading, Glencore dipped back to 524p, 6p below its issue price. Meanwhile, the battle to survive the commodity trader's upcoming entry into the FTSE 100 next week was heating up, as Invensys managed a partial rebound of 2.8p to 302.6p after dropping over 3 per cent on Thursday following its full-year figures. The engineer is one of the favourites to be relegated, and RBC did it no favours, saying the bid hopes that have been helping it recently are "fading fast".

Another of the names in the frame to make way, Investec, was also refusing to go down without a fight, and the investment bank ticked up 8p to 495p as UBS reiterated its "buy" recommendation after the release of its 12-month numbers earlier in the week.

Imperial Tobacco was out of puff, retreating 28p to 2,186p following reports from Spain that it is cutting prices in the country. Although Citigroup said the immediate effects would be minimal, it added the move was "a sign that the pricing environment has indeed got less good," adding that "in an industry that has been marked by excellent price discipline in recent years, there is evidence that that discipline has weakened".

It has been a busy period for takeover activity in the technology sector, and yesterday proved no different. Micro Focus, which last month revealed it had received a preliminary approach, advanced 28.8p to 398.6p on the FTSE 250 after announcing a number of companies had now made their interest known.

Elsewhere, Kofax may have been the acquirer yesterday as it agreed to buy the US company Atalasoft for nearly $10m, but City scribblers were still talking up the attractiveness of the software group, which slipped back 5.6p to 473.4p. Saying the deal will provide "new product capabilities," Espirito Santo added the news "not only bodes well for Kofax's near-term revenue and earnings growth but also increases [its] attractiveness to a trade buyer over the medium term".

Mitchells & Butlers was stuck at the foot of the mid-tier index after the pubs group issued its figures for the first-half, despite its pre-tax profit of £63m meeting expectations. It ended up retreating 17.4p to 319p, with Royal Bank of Scotland noting "a slight frustration" given its failure to appoint a new chief executive or reinstate its dividend.

Down among the small-cap groups, Minerva – 7p better off at 102p – revealed it was in "advanced discussions" with a number of groups following reports that three bids had been made for the property developer.

FTSE 100 Risers

National Grid 632.5p (up 10p, 1.61 per cent)

Utility company advances after revealing a 25 per cent rise in its full-year pre-tax profits.

ITV 70.75p (up 1.05p, 1.51 per cent)

Analysts at Liberum speculate that recent weakness means broadcaster could attract potential bidders.

Randgold Resources 4,755p (up 32p, 0.68 per cent)

Miner benefits from Citigroup increasing its price target from 5,488p to 6,135p.

FTSE 100 Fallers

Lloyds Banking Group 51.61p (down 1.52p, 2.86 per cent)

Takes the wooden spoon as Goldman Sachs cuts its rating to "neutral".

Barclays 273.6p (down 3.85p, 1.39 per cent)

Share price dips despite Berenberg raising its recommendation on the bank to "buy".

Aggreko 1,753p (down 20p, 1.13 per cent)

Temporary power supplier falls behind even though HSBC raises its price target to 2,482p.

FTSE 250 Risers

TalkTalk 145.7p (up 5.6p, 3.99 per cent)

Telecoms company still rising following the release of its final results on Thursday.

ITE Group 243.6p (up 9.2p, 3.92 per cent)

Exhibitions organiser has its recommendation raised from "hold" to "buy" by Peel Hunt.

Northumbrian Water 361.5p (up 1p, 0.28 per cent)

Utility company eases forward as takeover speculation is reheated once again.

FTSE 250 Fallers

Babcock International 679.5p (down 25p, 3.55 per cent)

Defence services company knocked back by profit-taking after recent price rises.

Michael Page 529p (down 11p, 2.04 per cent)

HSBC initiates coverage on recruitment group with an "underweight" rating.

Mitie 210p (down 2p, 0.94 per cent)

Outsourcer's shares fall ahead of the release of its preliminary results on Monday.