Market Report: Broker brings out the bears around BAE

BAE Systems was among the laggards as the FTSE 100 turned lower yesterday and slipped back below the 4,900-point mark last night.

The defence group eased back by 2.4 per cent, or 8.1p, to 324p after Goldman Sachs reiterated its "sell" stance on the back of three fresh pieces of news, starting with the US budget deficit. Using the White House's most recent projections, the deficit is set to be nearly $2trn higher over the next 10 years than was previously expected. Given that defence accounts for 60 per cent of federal discretional spending, the broker said it was almost certain that the American defence budget would be cut heavily.

The prospect of an early withdrawal of US troops from Iraq, and the chance of cuts in British defence spending, also weighed against the investment case, Goldman said. It highlighted the recent leaked UK government report on defence procurement which was highly critical of the amount spent on "poor decisions". "In our view, this criticism could make it easier to cut the UK defence budget," Goldman said.

Overall, the market paused for breath with the FTSE 100, down 26.22 points at 4,890.58, ending a six-session winning streak. The mid-cap FTSE 250 index was also unsettled, relaxing to 8,783.21, down 77.6 points.

The banking sector was the focus of a circular from Mike Trippitt, an analyst at Oriel Securities, who moved his rating on Lloyds, which climbed 0.64p to 108.47p, from "add" to "reduce". "The operating outlook is beginning to improve for [the group] and we forecast a strong trading surplus performance for 2010, underpinned by favourable revenue and cost trends," he said. "However, a base case core tier 1 ratio of sub-5 per cent in 2011 suggests that life without the Government Asset Protection Scheme (Gaps) or an alternative capital raising is not tenable."

Mr Trippitt was keener on Lloyds's state-backed peer, Royal Bank of Scotland, which climbed 5.3 per cent, or 2.85p, to 56.6p – further ahead of the average 50.5p price that the Government paid for its stake. He upgraded the stock from "reduce" to '"add", with its target price revised from 40p to 60p, and quoted the RBS chief executive Stephen Hester as he said: "There is greater clarity, if not certainty."

"A post-Gaps tangible net asset value per share of 53p in 2010 provides a floor for the shares," Mr Trippitt added. "We forecast relatively rapid elimination of losses at RBS, which provides some resilience to the core tier 1 ratio and to tangible net asset value per share.'

Elsewhere, the profit-taking trend persisted across the mining sector, proving a drag on the likes of Rio Tinto, which fell 4 per cent, or 99p, to 2381.5p, Xstrata, down 4.1 per cent, or 35.5p, at 825.5p, and Lonmin, down 3.1 per cent, or 47p, at 1471p. Anglo American was also weak, retreating by 2.3 per cent, or 47.5p, to 2003p.

Back on the upside, Diageo gained 3 per cent, or 25p, to close at 996.5p as investors looked ahead to its final results, due this morning. The shares traded up amid renewed speculation that the drinks group might use the occasion to announce a deal to acquire the wine and spirits division of the French luxury brands group LVMH.

There was also vague talk of a possible joint venture with LVMH. The rumour was that instead of buying the wine and spirits division, Diageo might acquire a stake.

On the second tier, the housebuilder Redrow rallied to 240.5p, an increase of 5.3 per cent, or 12.2p, thanks to UBS, which switched its stance on the stock from "sell" to "neutral" in a sector review.

The broker also reiterated its "buy" rating on Bovis and its "neutral" stance on Persimmon. Both remained weak: Bovis closed a penny lower at 555p while Persimmon retreated to 491.8p – a fall of almost 4 per cent or 19.7p – as traders cited signs of profit-taking on the back of their results.

"Trading updates from Bovis and Persimmon point to the stabilisation of trends in the UK housing sector," the broker said.

"We believe prices have now bottomed at around 20 per cent from the peak and, with continued up-tick in mortgage approvals, this trend should persist as well as provide some growth to volumes."

Further afield, Punch Taverns rose by almost 4 per cent, or 5.2p, to 136.1p as traders highlighted a new Bank of America-Merrill Lynch circular about the pubs group. Reiterating its "buy" stance, with Punch's target price revised from 120p to 200p, the broker suggested that "the recent equity raising and disposal proceeds have provided enough headroom for the company to trade through this recession".

"Punch currently trades at a 62 per cent discount to its net asset value per share of 330p per share," Merrill said in a note. "This suggests that either the market believes that Punch will not survive, or its property portfolio is drastically overvalued. Our analysis suggests neither of these to be the case."

Among the smaller companies on the index, Trinity Mirror surged by 8.2 per cent, or 10.5p, to 138p after Panmure Gordon weighed in and raised its target price for the newspaper group's shares to 110p from 48p.

News
Denny Miller in 1959 remake of Tarzan, the Ape Man
people
Arts and Entertainment
Cheryl despairs during the arena auditions
tvX Factor review: Drama as Cheryl and Simon spar over girl band

News
Piers Morgan tells Scots they might not have to suffer living on the same island as him if they vote ‘No’ to Scottish Independence
news
News
i100Exclusive interview with the British analyst who helped expose Bashar al-Assad's use of Sarin gas
PROMOTED VIDEO
Sport
Angel Di Maria celebrates his first goal for Manchester United against QPR
Football4-0 victory is team's first win under new manager Louis van Gaal
Arts and Entertainment
art
News
newsIn short, yes
Arts and Entertainment
Rob James-Collier, who plays under-butler Thomas Barrow, admitted to suffering sleepless nights over the Series 5 script
tv'Thomas comes right up to the abyss', says the actor
Arts and Entertainment
Calvin Harris claimed the top spot in this week's single charts
music
Sport
BoxingVideo: The incident happened in the very same ring as Tyson-Holyfield II 17 years ago
News
Groundskeeper Willie has backed Scottish independence in a new video
people
Arts and Entertainment
The Doctor poses the question of whether we are every truly alone in 'Listen'
tvReview: Possibly Steven Moffat's most terrifying episode to date
News
ebooksAn unforgettable anthology of contemporary reportage
News
i100
Life and Style
Cara Delevigne at the TopShop Unique show during London Fashion Week
fashion
News
The life-sized tribute to Amy Winehouse was designed by Scott Eaton and was erected at the Stables Market in Camden
peopleBut quite what the singer would have made of her new statue...
Sport
England's Andy Sullivan poses with his trophy and an astronaut after winning a trip to space
sport
News
peopleThe actress has agreed to host the Met Gala Ball - but not until 2015
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Training Coordinator / Resource Planner - City, London

£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

Day In a Page

These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week
The fall of Rome? Cash-strapped Italy accused of selling its soul to the highest bidder

The fall of Rome?

Italy's fears that corporate-sponsored restoration projects will lead to the Disneyfication of its cultural heritage
Glasgow girl made good

Glasgow girl made good

Kelly Macdonald was a waitress when she made Trainspotting. Now she’s taking Manhattan
Sequins ahoy as Strictly Come Dancing takes to the floor once more

Sequins ahoy as Strictly takes to the floor once more

Judy Murray, Frankie Bridge and co paired with dance partners
Wearable trainers and other sporty looks

Wearable trainers and other sporty looks

Alexander Wang pumps it up at New York Fashion Week
The landscape of my imagination

The landscape of my imagination

Author Kate Mosse on the place that taught her to tell stories