The stock market mounted a comeback last night, with the vehicle and aircraft parts-maker GKN rallying as bargain-hunters moved in to make the most of recent losses.
The stock soared by more than 6 per cent or 7.4p to 119.5p, with traders heeding a bullish call by UBS. The broker argued that recent share price falls meant that it was "time to buy", with GKN down sharply since the end of April. "Although our investment case and profit forecasts are unchanged, we believe the lower valuation now offers an attractive risk-reward profile for investors," UBS explained, adding that the upcoming half-yearly results were likely to be strong, with good headline numbers and a positive outlook statement.
"We believe there is some upside risk to our first-half profit forecasts from better margins in [the] automotive and powder metallurgy [divisions]," the broker said. "Recent comments from original equipment manufacturers and other auto suppliers also suggest that European car production volumes will remain solid through the third quarter."
Overall, bargain hunting was evident across the London market, with the FTSE 100 rallying by nearly 3 per cent or 141.47 points to 4,965 and the FTSE 250 swelling by around 2 per cent or 199.74 points to 9,501. Traders moved in to capitalise on recent falls in the mining sector following an upbeat assessment of the global economy from the Australian central bank. The Chilean copper miner Antofagasta rallied by more than 7 per cent or 57.5p to 818.5p, ending the day at pole position on the FTSE 100, while Kazakhmys rose by 69.5p to 1,037p and Lonmin booked a gain of 66p to close at 1,426p.
Recovery hopes also lifted the mood across the banking sector, with Barclays, up 15.4p at 274.6p, leading the rebound. Royal Bank of Scotland also stood out, registering a 1.95p rise to 40.91p after analysts at Exane BNP Paribas abandoned their negative stance. The broker said that with the UK Government having "de facto ruled out" any moves to offload its interest before the final quarter of 2011, worries about whether the Treasury's average buy-in price of 50.53p created a "glass ceiling" had been rendered redundant for now. That in turn should allow RBS to take part in any recovery in the wider sector, Exane added, moving the stock to "neutral" from "underperform".
Elsewhere, the commercial property group Land Securities was marked up by 18p to 563p after UBS warned investors that a focus on the short-term outlook was obscuring supportive long-term trends. The wider sector was also firm last night, with British Land gaining 12.3p to 450p, Hammerson adding 6.2p to close at 342.5p and Capital Shopping Centres rallying by 4.7p to end the session at 306.3p.
On a more speculative track, the supermarket group J Sainsbury, up 7.4p at 328.2p, featured in the market rumour mill last night. A bid was said to be in the pipeline, though traders were weary of suggestions of interest from the Middle East. The stock is a favourite of the speculators, who repeatedly tout theories of another approach from Qatar. In the wider sector, WM Morrison Supermarkets led the way, adding 7.9p to 275p, while Tesco closed at 391p, up 1.95p. The former was supported by Collins Stewart, whose analysts upped the stock "buy", citing the valuation relative to peers in the European food retail sector and the strength of the Morrisons balance sheet.
The broker also highlighted the strategic options available to the new chief executive, Dalton Philips, including the possibility of leveraging the company's property portfolio, the broadening of the non-food offer and the development of home shopping services. "We also see opportunities for further productive gains in-store (shelf-ready packaging and in-store wage costs), which will further boost the operating margin," Collins said, setting a new 300p target price on the stock.
The medical device manufacturer Smith & Nephew ended 7p higher at 587p, after Seymour Pierce, while scaling back its forecasts, reiterated its "buy" view. Investec also repeated its positive stance, saying that while consensus was likely to come down over the new few days, the company stood to gain from a recovery in the wider economy. "On our forecasts, the shares aren't expensive either in absolute terms or relative to peers, and with the likely second quarter weakness now [reflected] in the market, the risks appear to be on the upside," the broker said.
Further afield, UBS was behind the gains in the retailer Debenhams, which rose by 2.85p to 60.05p after the broker upped the stock to "buy". "Debenhams looks cheap on all metrics," UBS said, citing the recent run of weakness relative to the wider retail sector. "Although the 2.5 per cent fall in like-for-like sales in the third quarter is disappointing, we believe that this can be recovered in the fourth quarter to give flat like-for-like sales in the second half," the broker added, revising its target price to 77p from 75p. "The third quarter included the election, the Budget and the World Cup and believe that these disguised the underlying picture."