Market Report: Broker's U-turn pushes Arm Holdings higher

Traders may have been left twiddling their thumbs yesterday morning after a technical glitch stopped trading on the London Stock Exchange, but once things got going Arm Holdings managed to power ahead as analysts from Bank of America Merrill Lynch ate humble pie.

The broker has been one of the few to sound bearish about the chip maker, which has risen nearly 80 per cent since November, helped by persistent takeover speculation. However, in a remarkably honest note, its analysts revealed they had now changed their mind, admitting that they had "been negative and wrong on Arm for a long time".

Explaining their U-turn, they said they "had underestimated the potential for royalty rates to increase from their historical level of 1 per cent and the sheer pace of end market growth addressable by Arm's customers".

Changing their recommendation on Arm to "neutral" from "underperform", they almost tripled its target price, moving it from a lowly 238p to 660p. As a result, the Cambridge-based company was driven up 34.5p to 608p, leaving it at the summit of the blue-chip index.

The big talking point of the day was the glitch that halted trading on the London Stock Exchange just minutes after it opened; the exchange did not start again until after midday. When it did resume, the FTSE 100 – which had lost more than 160 points in the previous four sessions – managed an impressive rally, surging forwards 81.22 points to 6,001.2 despite the release of disappointing GDP figures.

The blue-chip miners were the main drivers, with ENRC rising 29p to 957p after it was announced that the sovereign wealth fund of Kazakhstan had agreed a $2bn (£1.24bn) loan from the Chinese state bank to be used for a number of the company's planned chrome and iron ore projects.

Also moving up was Anglo American and Antofagasta, climbing 128.5p to 3,307p and 49p to 1,397p respectively, while Rio Tinto advanced 95.5p to 4,265.5p despite UBS deciding to remove it from its list of European key call stocks.

Meanwhile Vedanta Resources was lifted 95.5p to 4,265.5p after saying it believed that its $9.6bn attempt to gain control of Cairn India would get the green light from the Indian government.

Despite comments that it was unlikely to receive a takeover approach imminently, Smith & Nephew still managed to creep up 7.5p to 717.5p. Persistent speculation has helped the medical-device manufacturer recently, but Investec's Sebastien Jantet said that "a bid is looking increasingly unlikely in the short term". As a result, the analyst predicted, "the shares will go sideways whilst they consolidate the recent gains".

Meanwhile, BSkyB added 31p to 786.5p following reports that News Corporation is close to an agreement with the Office of Fair Trading over its proposed takeover of the broadcaster.

There were only four fallers on the top index, with Lloyds Banking Group the worst performer after its full-year results. Despite announcing a return to profit, comments over its margins for the near future disappointed, and it was knocked back 2.93p to 62.85p.

Also releasing an update was International Consolidated Airlines, its first since it came into existence as the result of the merger between British Airways and Iberia. Even though it announced a pre-tax profit for 2010 of €84m (£72m), the group still edged down 1.6p to 224.6p, meaning it has now fallen for seven consecutive sessions.

Spectris finished at the top of the second line after impressive figures from the engineer led it to move 150p higher to 1,401p. Meanwhile Rightmove – which said its full-year operating profit increased nearly 40 per cent – was also ahead, gaining 41p to 898p.

Sentiment around the gaming sector was strong as Rank and William Hill – up 6.6p to 131.6p and 7.4p to 190.9p respectively – both released impressive numbers. Rank, which owns Mecca Bingo, revealed its annual profits had risen by 14 per cent while William Hill attributed its strong performance to its gaming machines and online unit in particular.

The aerospace electronics company Cobham was 11.6p better off at 228.1p after it revealed that it will gain from Boeing winning the $30bn US Air Force contract to supply 179 airborne refuelling tankers. The American giant has asked Cobham to provide systems for the aircrafts, in a deal which Atif Latif, Guardian Stockbrokers' head of trading, said was "very significant for [the company] ... and will help increase earning upgrades".

The small-cap support services company Interserve edged back 2.5p to 247.75p as it revealed that it is the group currently engaged in "advanced discussions" with Mouchel over a potential takeover bid for the outsourcer.

Meanwhile, on the fledgling index, Uniq was bumped up 2.39p to 10.25p after the chilled foods specialist's shareholders approved a plan to leave over 90 per cent of the group in the hands of its pension fund.

FTSE 100 Risers

GKN 204.7p (up 7.3p, 3.7 per cent)

Engineering group rebounds after two tough sessions in which it dropped more than 6 per cent in total.

British American Tobacco 2,466.5p (up 70p, 2.92 per cent)

Moves forwards as Nomura increases its target price to 2,800p from 2,750p.

HSBC 711.1p (up 16.3p, 2.35 per cent)

Gains as it prepares to continue the bank reporting season with its annual results next Monday.

FTSE 100 Fallers

Reckitt Benckiser 3,163p (down 29p, 0.91 per cent)

Maker of Durex condoms and Vanish stain remover drops for fifth straight day.

Petrofac 1,378p (down 4p, 0.29 per cent)

Oil services group has now shed over 12 per cent of its price in nine sessions.

Royal Bank of Scotland 45.65p (up 0.05p, 0.11 per cent)

Underperforms the rest of the top-tier index despite UBS upping its price target to 53.5p.

FTSE 250 Risers

IG Group 448.4p (up 25.4p, 6 per cent)

Spreadbetter one of second line's biggest movers as Citigroup increases its rating to "buy" from "hold".

Bodycote 302.7p (up 16.2p, 5.65 per cent)

British engineer benefits from Panmure Gordon and JP Morgan Cazenove raising its price target.

Rightmove 898p (up 41p, 4.78 per cent)

Property website sees its full-year operating profit increase by nearly 40 per cent.

FTSE 250 Fallers

Ocado 198p (down 7p, 3.41 per cent)

Online grocer falls once again; it has now lost nearly 25 per cent over just five trading sessions.

Cable & Wireless Communications 47.43p (down 0.75p, 1.56 per cent)

Telecoms group drops as Evolution Securities reiterates its "sell" advice.

Britvic 366.7p (down 2.3p, 0.62 per cent)

UBS reduces its recommendation on the drinks company to "neutral" from "buy".

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