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Market Report: Balfour Beatty builds on US expectations

Toby Green
Saturday 27 November 2010 01:00 GMT
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Balfour Beatty was among the major gainers as the markets limped to the end of a tough week.

The infrastructure services group advanced 6.4p to 279.4p after Goldman Sachs gave it a boost by highlighting it as a strong investment opportunity in a construction market it described as "challenging".

The broker's analyst, Will Wyman, was fairly bearish on the sector, noting that "residential construction activity remains materially below trend, the upturn in commercial construction is uneven, and the outlook for civil engineering appears to be deteriorating".

Yet despite all that doom and gloom, he still saw fit to upgrade Balfour Beatty to a "buy" recommendation, pointing to its increased exposure to the US market after buying Parsons Brinkerhoff.

Mr Wyman also noted that "Balfour Beatty shares have significantly underperformed peers," which he said was partly thanks to the uncertain outlook for UK and US government spending on infrastructure.

Yesterday also saw Balfour Beatty finalise a deal to get rid of its £375m pension deficit. The agreement, struck with its pension fund's trustees, will see the company pay a one-off fee of £40m, followed by annual payments of £48m.

The FTSE 100 endured a dire morning of trading, as it dipped below 5,600 points before midday. Yet it managed to mount something of a comeback in the afternoon to finish just 30.23 points down on 5,668.7.

Among the worst-hit stocks were the banks as investors continued to worry about the economic state of the eurozone. Portugal, one of the countries it is feared may need a bailout, did manage to finalise its budget yesterday, yet Royal Bank of Scotland and Lloyds Banking Group still took the bottom two places in the FTSE as they slumped 2.17p to 38.69p and 2.85p to 61.85p respectively.

The potent combination of a fall in commodity prices and speculation over what measures China may take to tackle inflation signalled bad news for the miners. Worst-hit was Antofagasta, which shed 52p to 1,325p, while Vedanta Resources retreated 68p to 2,075p.

Another faller in the sector was Rio Tinto, despite the mining giant saying that it had stumbled across an extra 2bn tonnes of iron ore reserves in the Pilbara region in Australia. H2O Market's Daniel Harris said that in the near term its "stock is likely to be more vulnerable than others to any fiscal tightening measures in China". It was driven back 90.5p to 4,179p.

BT moved forwards 7.3p to 174.2p as it revealed that it had sold a 5.5 per cent stake in Indian IT services firm Tech Mahindra. Exane BNP Paribas gave it a helping hand by upping its target price to 265p.

Another climber was Weir, up 49p at 1,756p thanks to Morgan Stanley, which started its coverage on the pump and valve maker. The broker gave it an "overweight" recommendation and a target price of 2,000p, saying that "although we acknowledge that the easy money has been made... we are at the beginning of a capex recovery that is promising to be a multi-year, structural cycle".

Top of the pile on the FTSE 250 was Telecity, as Collins Stewart decided to take a look at the data centres group. The broker initiated its coverage with a "buy" recommendation, and said that the company should not be hit by its US peer Equinix scaling back its revenue outlook in October

"We regard the resulting weakness in Telecity's share price as an opportunity to buy a high-quality asset at a discount to its fair value," said Collins Stewart, provoking a 27.5p surge in the share price, to 471.5p.

Speculation that Wm Morrison may make a play for Ocado meant the online food retailer's price went up for the second consecutive day, as it booked gains of 6p to 151p. However, Shore Capital's analysts were rather sceptical about the idea, saying that "such a move would, to our minds, raise serious questions as to Morrison's judgement".

Panmure Gordon analyst Jean Roche came away from a meeting with Mothercare – which as well as running the chain of the same name also owns the Early Learning Centre stores – in an upbeat mood, praising its "international potential" and "strong balance sheet", among other features.

She kept the company, which gained 24p to 569p, on a "buy" recommendation, and said that an upcoming analysts' trip to India is likely to showcase the potential for Mothercare in that market "and other high birth rate, high GDP growth countries".

On the Alternative Investment Market, there were two lots of good news for Verona Pharma, both of them centring around its asthma drug, RPL554. The company is now able to start a new trial of the drug after being given permission by the Dutch authorities, while a separate trial revealed that it can be used in all major inhalers. Investors' interest was sparked, and Verona jumped 1.5p to 10.5p.

FTSE 100 Risers

Capital Shopping Centres 401p (up 20p, 5.25 per cent)

Prospective buyer of Manchester's Trafford Centre posts second day of major gains.

Autonomy 1,341p (up 50p, 3.87 per cent)

Software group up, as it continues to claw back ground lost in falls prompted by acquisition delay.

GlaxoSmithKline 1,260.5p (up 17.5p, 1.41 per cent)

Strikes production deal with Russian manufacturer Binnopharm over a number of GSK vaccines.

FTSE 100 Fallers

Kingfisher 244.6p (down 4.9p, 1.96 per cent)

Home improvement company has its recommendation downgraded by Investec to "sell".

Standard Chartered Bank 1,757.5p (down 35p, 1.95 per cent)

Drops despite Moody's upping its Bank Financial Strength Rating to B-.

Johnson Matthey 1,872p (down 20p, 1.06 per cent)

Has its target price raised by UBS to 1,975p from 1,900p, yet share price falls regardless.

FTSE 250 Risers

Carillion 346.3p (up 6.3p, 1.85 per cent)

Moves forward as Goldman Sach's research on mid-cap construction sector ups its target price.

Thomas Cook 193.8p (up 3.3p, 1.73 per cent)

Tour operator rises ahead of the release of its preliminary results next week.

DMGT 549p (up 4.5p, 0.83 per cent)

Publisher of Daily Mail edges upwards after UBS cuts its advice to "neutral" from "buy".

FTSE 250 Fallers

Paragon 162.5p (down 5.8p, 3.45 per cent)

Falls despite both Credit Suisse and KBC Peel Hunt raising its target price.

London Stock Exchange 778p (down 17.5p, 2.2 per cent)

Shore Capital's positive feedback from investor lunch can't prevent a drop.

Intermediate Capital Group 325.5p (down 3.6p, 1.09 per cent)

Market ignores positivity from Credit Suisse, which ups its price target.

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