Market Report: Bargain hunters peg their hopes on British Land
Tuesday 18 May 2010
British Land strengthened as the wider market tried but failed to recover from Friday's losses, with bargain hunters sensing a buying opportunity ahead of the FTSE 100-listed property group's full-year results.
The stock gained 9.1p to 433.3p after Panmure Gordon turned positive on valuation grounds. The broker said that not only did the property group benefit from a portfolio of good quality assets rented out on long leases with few upcoming breaks or expiries, but that it boasted a strong balance sheet with a relatively low loan-to-value ratio. This, coupled with the 6.1 per cent dividend yield and the fact that the stock trades at a 15 per cent discount to forecast net asset values, pointed to an "excellent investment proposition" at current levels.
"British Land has the flexibility and firepower to take advantage of market conditions and make acquisitions which will provide additional growth in earnings and dividends beyond that which is forecast in our models," Panmure said ahead of the company's full-year figures, due this morning.
overall, the benchmark FTSE 100 was flat at 5,262.54, down 0.3 points, as investors remained wary of piling into equities. The mid-cap FTSE 250 index was worse off, easing by 90.87 points to 9,932.03, with easyJet claiming the wooden spoon on worries about the return of the Icelandic ash cloud.
The budget airline, which closed 24.7p lower at 391p, was also unsettled by the recent departure of Sir Stelios Haji-Ioannou, the group's founder who stepped down from the board last week. Responding to the news, Deutsche Bank stuck to its "buy" view, but said: "Whilst our valuation is unchanged, there is considerable downside risk following the resignation of Stelios and his comments on strategy."
Back with the blue chips., BP was flat, easing by a mere 0.3p to 529.9p, despite the oil major saying that it had made some inroads in containing the Gulf of Mexico spill. The stock was also the subject of a new circular from Bank of America Merrill Lynch, whose analysts reiterated their "buy" recommendation. The broker did, however, warn on the pressures facing the group, saying that "while some progress is being made on containing the spill, the political and environment pressure is mounting on BP".
Other oil-related stocks managed to avoid slipping into negative territory, with BG, up 8.5p at 1,036.5p, and Royal Dutch Shell, up 3p at 1,856.5p, standing firm despite some softening in crude prices. Cairn Energy led the blue-chip exploration and production plays, rising by 5.5p to 395.4p, while Tullow Oil gained 5p to close at 1,113p.
Mining stocks were mixed, with parts of the sector easing against the backdrop of uninspiring movements on the commodity markets. Xstrata, for instance, was 20.7p behind at 988.8p, while Kazakhmys lost 35p to 1,201p. Rio Tinto was also weak, shedding 3 per cent, or 95.5p, to 3,114.5p. Randgold Resources, on the other hand, finished 95p ahead at 6,105p as the gold price steadied following recent gains. The yellow metal, the traditional hedge against economic stress and the threat of inflation, touched record highs last week as investors sought cover from the European debt crisis.
Severn Trent received a boost from JP Morgan Cazenove, adding 8p to 1,136p after the broker said the water sector was "fundamentally" attractive. Looking ahead to the upcoming results round, JP Morgan suggested that investors were likely to be pleased with the news on payouts, with yields on final dividends alone expected to be "between 3 and 4.5 per cent".
The sector may also receive a boost from EDF's sale of its UK electricity distribution business, which is expected to be finalised by the end of next month. The broker reckons that EDF could achieve a 10 per cent-plus premium in terms of enterprise value to regulated asset value (RAV), which would have a positive read-across to the water sector where stocks currently trade in line with forecast RAV.
The newspaper publisher Trinity Mirror, which slumped after disappointing the market with an update last week, was steady, closing 0.4p firmer at 112.7p after UBS said the sell-off was "unjustified". The broker argued that while Trinity's statement was indeed "relatively lacklustre", the update was unlikely to spark a significant change in consensus forecasts. Moreover, the valuation is undemanding, with Trinity trading at a discount to its historical range, UBS said, recommending the stock over Johnston Press, which was 7.1 per cent, or 1.75p, weaker at 22.75p last night.
further afield, the semiconductors group Wolfson Microelectronics rose by 11.5p to 177.75p following positive feedback from an analyst and investor outing on Friday. Citigroup reiterated its "buy" view, saying that the presentations left it feeling more confident about Wolfson's competitive position.
At the same time, the company appeared to have learnt how to retain customers, the broker added, noting: "In addition to greater reuse of R&D [research & development] across teams to keep product innovation ahead of competition, Wolfson is now engaging with its customers at a much earlier stage of device design."
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