Wolseley attempted a comeback last night as traders looked beyond the recent spate of negative news on the macroeconomic front.
The building materials group has extensive operations on the other side of the Atlantic and has suffered as the bears seized on the spate of grim economic data out of the US in recent weeks. But the bulls returned to the stock last night, capitalising on a slide of about 20 per cent since the beginning of June, after the analysts at Numis argued that the sell-off had been overdone. The broker said investors should pay closer attention to Wolseley's "self help" initiatives, with the benefits of the company's cost-cutting drive, management's focus margins and actions on underperforming divisions likely to drive earnings estimates over this year and the next.
"In out view, full-year results [in September] are likely to continue to show benefits of management actions, a strengthened balance sheet and an update on the management plan set out by chief executive Ian Meakins," Numis said, aiding the stock's rise to 1,306p, up 26p. "While macro uncertainty is unlikely to go away in the short term, this needs to be put in context, relative to management actions, which we believe will be the major driver of profit recovery."
overall, the markets rallied, with the FTSE 100 rising by 39.56 points to 5,234.84 and the FTSE 250 closing at 9,826.15, up 65 points. The mining sector was broadly firm, with investors buying in on the back of firmer commodity markets and an inconclusive election in Australia. There were hopes that a change of guard and the installment of a minority conservative government down under would lead to the scrapping of the planned tax on mining profits. The prospect aided the likes of Rio Tinto, which was 18.5p better off at 3,350p, and BHP Billiton, which rose by 9p to 1,830p as the board of Canada's Potash Corporation urged shareholders to turn down its hostile bid.
Old Mutual was in focus following confirmation of talks with HSBC, up 5p at 639.2p, which is looking to acquire up to 70 per cent of Nedbank. Old Mutual owns a majority stake in the South African lender, and rose by 3.9p to 124.9p on the news. Though cautious on the prospects for regulatory approval of the deal, UBS said the sale of Old Mutual's stake would be "a positive step in the continuing simplification" of the insurance group.
"The resultant OML group would become an attractive takeout target for global life insurers looking for emerging market presence," the broker said, reiterating its "buy" view and 155p target price for the stock. In the wider sector, consolidation hopes drove Aviva to 391.2p, up 13.5p, while Standard Life gained 4.5p to 206.6p as the bulls piled in.
Elsewhere, the drinks giant SABMiller attracted interest, rising by 30.5p to 1,881.5p, amid reports that it was eyeing the Foster's beer business. Japan's Asahi Breweries was also said to be interested, but analysts played down the prospects, arguing that bids were more likely after next year's demerger of the Australian group's beer and wine businesses. Canada's Molson Coors and Coca-Cola Amatil were also mentioned as potential suitors for the beer arm.
Further afield, Dana Petroleum held steady, closing at 1,803p, up 5p, as the market awaited further developments in the Korea National Oil Corporation's hostile bid for the group. Knoc is offering 1,800p per share – a "good price" for the oil prospector's assets, according to Citigroup. The broker said it expected Dana management, which was reported to be seeking a higher offer in return for its backing, to "come out fighting" when the mid-cap groups issues its half-yearly figures later this week.
ITV continued to attract its share of bid rumours. Last week, the broadcaster was mentioned as a target for an American suitor last week, but last night the focus was on the possibility of interest from Europe. No names were mooted, but ITV has been linked to Italy's Mediaset in the past. Recent chatter of possible stake-building by the NBC network took a back seat as the shares, supported by bid hopes, gained 2.15p to 56.65p.
On the downside, the engineering group Charter International fell to 607p, down 15p, after Panmure Gordon revised its view to "hold" from "buy". The broker said it had been too optimistic on the rate of near-term recovery at Charter's Howden air and gas handling equipment division. "The order bounce enjoyed in the first quarter has lost momentum and we now forecast a shortfall of revenues for 2011," Panmure said, adjusting its earnings estimates and scaling back its target price for the stock to 770p from 1,010p.
there were no takers for Speedy Hire, the tool hire firm whose shares continued to retreat last night, falling by 0.25p to 20.75p despite a push from Evolution. The broker told clients that, following last week's declines, the stock was "discounting a triple dip" scenario. "Even before last week's drop, Speedy's share price was discounting a nasty double dip," the broker said, adding: "We think the dire scenario that is priced into Speedy's shares is overplayed."