Market Report: Buoyant BT rings a bell with investors

Investors who hung up on BT shares earlier this week came running back to the telecoms giant yesterday after its fourth-quarter results were way better than expected. The forecasts earlier in the week were so low that even BT's house broker, Bank of America Merrill Lynch, decided to move to neutral from buy.

But our desire for better and faster broadband helped chief executive Ian Livingston report pre-tax profits up 7 per cent to £675m in the three months to the end of December – well ahead of City forecasts.

The shares dialled up a 16.2p gain to a five-year high of 264.8p and a place at the top of the benchmark index.

A new restructuring plan is now anticipated by the City, and Jefferies' Jerry Dellis thinks the stock is worth a buy at 278p.

BT will launch its TV and Sports channels in the summer, and has signed up an extra 21,000 customers to BT Vision in the last three months of 2012, taking the total to 770,000.

Revenues for the quarter dropped, as expected, by 6 per cent to £4.5bn.

Mr Dellis thinks BT's new group-wide cost-cutting programme will result in efficiency gains that other analysts earlier this week did not think possible. Merrill had claimed further cost-cutting would "be harder to achieve".

BT was leading a buoyant FTSE 100 index yesterday, and added 70.36 to 6347.24. The last time the blue-chip index was this high was May 2008. The market is certainly looking healthier despite weaker volumes, and January had the best performance since 1989.

The mood yesterday was boosted by a run of good news including China's manufacturing expansion – which helped miners up – as well as news from the US that jobs figures were solid with 157,000 jobs created, just below the forecast.

The US jobless rate rose slightly more than predicted, to 7.9 per cent, but this increase gave traders hope that the Federal Reserve will stay on track with its policies. The Dow Jones Industrial Average flew up 142 points to 14,003, less than 200 points off its 2007 all-time high of 14,164.53.

No matter what is happening in the wider market, traders always have time for some gossip and yesterday one spurious rumour was that miner Petropavlovsk is in play and the shares dug up a 11.6p gain to 359.7p.

The City took a sweeping view of the supermarkets, and decided to bet that Tesco could soon put the horsemeat burger scandal out to pasture. Two City scribblers decided it is time to tuck into the supermarket giant's shares. Analysts at Jefferies and Nomura still rate it a buy, and Jefferies' James Grzinic upped his share-price target to 440p.

Nomura, with a 430p share-price target, reckons Tesco's plan to refocus on the UK business will pay off. It has more available capital than rivals, and its plans to refurbish "a quarter of UK floor space" will help to improve its chances of tempting cash-strapped UK shoppers to choose it over rivals. Tesco's shares edged up 4.3p to 360.6p.

Jefferies is also a fan of Wm Morrison, and gives it a Buy rating with a 310p target as it "appears remarkably cheap and should benefit from a rapid re-rating once sales momentum improves".

But Nomura is less keen and keeps it a Hold, cutting the share-price target to 270p. The Bradford-based supermarket chain's shares edged up 0.7p to 251.7p.

Over on the mid-cap index, trading at banknote printer De La Rue was in line with expectations but, happily for shareholders, the company has now signed a number of contracts that had been delayed. The group said it expects more than £100m of operating profit in the full year to next year. Analysts at Investec raised their price target to 960p. The shares were top of the mid-league table, up 51.5p to 953.5p.

Another day on AIM, and another dry well is plugged and abandoned. This time the bad news came from New World Oil and Gas. Shares lost almost half their value, plunging 3.35p to 4.65p, when it revealed it would have to plug and abandon its Blue Creek 2A oil well in the Petén Basin in north-west Belize. It will now move on to its next well, the Rio Bravo Well in West Gallon Jug in Belize.

But there was better news at Beacon Hill Resources. The AIM-listed coal producer climbed 1.24p to 4.01p when it announced the signing of a lease at the Minas Moatize coal mine in Mozambique.

Buy

Compass Group

Time to gobble up some shares in Compass, Panmure Gordon says. The broker is looking forward to the caterer's trading update on Thursday, adding that, when the business posted its preliminary numbers "the future prospects of the group remained encouraging". Shares at present are 776.5p and Panmure gives a target price of 820p.

Sell

Kingfisher

Yikes — best take wing and fly out of Kingfisher's shares, Seymour Pierce reckons. The broker says its B&Q "is putting its loss-making Irish business into administration" which "highlights concerns for the UK business". Shares are at 274.8p but Seymour feels 240p is fairer.

Hold

Wynnstay

Hang on to shares in Wynnstay, Investec advises. The broker feels the agricultural manufacturer and supplier's "broad base of activities appears to be protecting it from the vagaries of the UK weather and resultant agricultural cycles, but still generating steady growth". Shares presently trade at 451p; Investec gives a target of 465p.