Market Report: Anglo lose ground as broker moots break-up

Anglo American was in focus as a leading broker mooted the prospect of a break-up of the mining giant's international and South African businesses last night.

Bank of America Merrill Lynch said that since listing in London, Anglo has tried various ways of diluting its exposure to South Africa, where the mining industry's contribution to GDP has been declining relative to other commodity-rich countries.

In the past, this has taken the form of acquisitions, with bosses building heft in other industrial products as they tried to achieve a better valuation for the group. However, this has "proved a route to underperformance", according to the broker, whose analysts said a break up may provide a better basis for a re-rating.

"We envisage splitting Anglo American Plc into two London-listed vehicles, for example," Merrill said, putting an estimated enterprise value of about $34bn on the international business and of about $30bn on the South African arm. "We believe this idea, to split Anglo into two separate vehicles, would remove this overhang from the non-South African assets," the broker added as Anglo fell back, easing by 37p to 2,385p.

The stock moved lower with the wider sector, which was under pressure following some disappointing data on Chinese copper imports and a weaker than expected report on India's industrial output. As a result, Kazakhmys lost 31p to 1,057p, taking the wooden spoon on the FTSE 100, while Rio Tinto lost 70p to 3,102.5p and BHP Billiton closed down 27.5p at 1,825p. Antofagasta, the Chilean copper producer which was upgraded to "buy" from "hold" by Citigroup at the end of last week, bucked the trend, adding 16p to 902p.

overall, the FTSE 100 rose by 34.1 points to close at 5,167 amid low volumes, while the FTSE 250 added 28.4 points, to 9,774.16. BP dominated the upside, rallying by more than 9 per cent or 34.15p to 398.95p as traders bought in on weekend reports of prospective asset sales.

The stock was also buoyed by a renewal of bid talk, with speculators reheating theories of interest from Chinese and US peers, and by hopes for a new spill capture system in the Gulf of Mexico. The optimism briefly drove BP's shares beyond the 400p mark for the first time since early June, with the move up coming against the backdrop of confirmation that the cost of the response to the spill had ballooned to around $3.5bn (£2.3bn).

The BP rally ensured a positive end for the FTSE 100 and lifted the mood across the wider oil and gas sector, with stocks such as Royal Dutch Shell, up 11p at 1,771p, and BG, up 1p at 1,082.5p, firming up despite some weakness in crude prices. Exploration and production stocks were also strong, with Cairn Energy swelling by 8.7p to 459.3p and Tullow Oil rising by 13p to 1,141p. On the second tier, Dana Petroleum rose by 11p to 1,421p as the market awaited further news on the Korean oil group Knoc's recent approach to the company.

Elsewhere, Inchcape was driven up by 15.9p to 286.1p after UBS issued "buy" advice, arguing that the market may be underestimating the multi-national car dealer's recovery potential. "We believe the volatility and low visibility of the recovery is at least partly mitigated by Inchcape's geographic diversity and quality brand relationships," the broker said, abandoning its "hold" view, and raising its target for the stock to 330p from 310p.

Execution Noble boosted St James's Place, the wealth manager, which rose by 3.5p to 233.6p after the broker said majority-shareholder Lloyds Banking Group was unlikely to sell out at current levels.

Execution said that while the stake had created an overhang in the stock, it did not believe that Lloyds will sell below its cost price, which is estimated to be between 250-300p, or above the current St James's share price.

"Overall, whilst any placing will take time to digest, in the longer term we would expect the placing to allow St James's Place to re-rate back to its historic premium to peers," the broker explained, repeating its "buy" view.

Further afield, Greene King stood firm at 434.8p, up 0.8p, after being named as one of Deutsche Bank's top picks in the pubs sector. The broker also recommended Enterprise Inns, which was 0.1p better off at 95.2p last night. "The past three years have been a painful but cathartic experience. It may not be over yet, but we would argue that the industry will emerge in its strongest state once the economy recovers," the broker said, commending Greene King for its strategy and strong trading momentum, and highlighting the prospective upside in Enterprise Inns.

deutsche was more cautious on Mitchells & Butlers, which was 3.3p lower at 294.8p after the broker switched its stance to "hold" from "buy". Besides the recent run of strength – Mitchells has proved the best relative performer since the beginning of 2009 – Deutsche pinned its change of heart on a variety of short term issues, including "operational gearing, possible dilution from disposals (at least until capital is redeployed) and a less certain time horizon on reinstating the dividend".