Market Report: Analysts engineer rises for IMI and Rolls-Royce

Engineering stocks were in focus last night, as both Rolls-Royce and IMI found themselves propelled up the blue-chip index by bullish brokers.

Noting that the increasing price of oil has hit shares in the aerospace sector "as investors fear that airlines may once again seek to preserve cash", HSBC described Rolls-Royce as "well insulated relative to [its] peers". Its analysts upgraded the group's rating to "overweight", saying it was "set on visible long-term growth", and it climbed 10.5p to 620.5p.

There was an even bigger move for IMI after being named by RBC as its "top pick" in the sector, bumping it up 19p to 1,030p. The broker's analyst Andrew Carter said the group, which was promoted to the top-tier index last December, has been "transformed" over the last decade and that it was now "a high return, growth business that is strongly cash generative".

Mr Carter also initiated coverage on a number of its peers, including Melrose and Cookson, and they added 5.9p to 332p and 4p to 693.5p respectively after both being given an "outperform" rating. Smiths, meanwhile, shed 15p to 1,304p as the analyst predicted it would underperform the sector over the next 12 months.

Overall, the FTSE 100 finished ahead for the sixth consecutive session, rising 16.13 to 5,948.3, although market voices were still bemoaning the low trading volumes seen recently.

One stock attracting attention, however, was Centrica as traders pointed to speculation doing the rounds that Qatar could take a stake in the British Gas owner.

Noting that the utility revealed a contract with Qatargas last month, Investec's Angelos Anastasiou said he believes the agreement could "become a longer-term deal, extending to perhaps 10 years plus".

"The strategic alliance is also likely to be expanded," added the analyst, who reiterated his "buy" advice, "and it would not surprise us to see a direct investment in Centrica from the Qatari Investment Authority or a similar body".

Centrica ended up 8.1p better off at 330.7p, helped as well by the return of vague bid gossip with the Spanish group Iberdrola once again linked with a potential offer. Burberry has also seen reheated takeover speculation around it this week, and the luxury clothing brand increased 23p to 1,185p.

The miners were generally enjoying a move higher, including BHP Billiton which was lifted 34.5p to 2,449p after revealing the proposed expansion of its Olympic Dam mine in Australia had reached the next stage of planning. Vedanta Resources, meanwhile, took the gold medal position, closing 76p stronger at 2,314p, following its house broker Morgan Stanley reiterating its "overweight" rating.

Tullow Oil spurted up 15p to 1,459p as it announced it had struck a deal with both Cnooc and Total for stakes in its Ugandan fields, which will net the company $2.9bn. Killik's Jonathan Jackson said the news came as "a big relief", adding that although "there are still a number of tax-related issues to be resolved... a clear plan for the resolution of tax disputes on the various asset sales has been agreed by the government of Uganda, the tax authorities and Tullow."

Not for the first time in recent months, the retailers were out of favour, prompted yesterday by Dixons issuing a profit warning. The electricals chain said a fall in consumer confidence, particularly in the UK and Ireland, has led it to expect its annual profits to come in at the bottom of previous forecasts, and it plummeted 3.06p to 13.69p.

The repercussions were felt across the sector, including by its high street peer Kesa Electricals, which was driven back 7p to 124p. Also dropping was Halfords, down 15.9p to 359.3p, WH Smith, down 13.3p to 445p, and Home Retail, down 8.5p to 192.9p.

Meanwhile on the top-tier index, Next declined 54p to 2,011p while Marks & Spencer took the wooden spoon, sliding 10.6p to 340.7p. The high street institution was not helped by Oriel Securities reducing its profit expectations ahead of the group's trading update next week, while MF Global started its coverage on the group with a "sell" rating in a large note on the sector.

The broker had nicer words for Wm Morrison, however, labelling the supermarket a "conviction buy" and saying that its "step up in investment... in new space, formats, own brands and the internet should underpin sales growth". The group subsequently gained 5.3p to 273.8p, but Tesco – which had its rating upgraded to "buy" – edged 0.7p lower to 385.75p.

Back on the mid-tier index, Lamprell shifted up 15.5p to 338p as it announced a $41m contract with Weatherfood Drilling International, while Evolution Securities decided to increase its price target to 450p from 400p.

It was plain sailing for YCO, which provides a variety of services to owners of large yachts, on the choppy waves of the Alternative Investment Market. The group predicted its full-year profit would reach £900,000, up from £31,000 the year before, and it surged forwards 1.38p to 12.88p.

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