Market Report: Cadbury declines as defensives retreat

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The Independent Online

Cadbury fell behind last night after Goldman Sachs, mindful of the "green shoots" that have been spotted in various parts of the economy in recent weeks, advised investors to switch out of the defensive food and beverages sector.

The clutch of economic indicators – including signs of recovery in the UK and the US housing markets, evidence of an uptick in consumer demand and the fourth consecutive rise in China's purchasing manager's index – brought the market well above the depressed levels struck in February; and, although the initial enthusiasm evoked by the news may wane, and while a recovery may still be some way off, Goldman said it was unlikely that the market was going to retest its lows. This is no bull market, the broker said, but "it is hard to ignore the stream of positive data that has come out".

So, factoring in the data, Goldman switched its stance on the food and beverages sector to "underweight" from "neutral".

"Like healthcare, food and beverage has been a strong performer due to its defensive nature and would likely underperform should signs of stabilisation emerge," the broker said, helping send Cadbury to 517p, down more than 3 per cent or 18p.

Healthcare was moved to "neutral" from "overweight", undermining sentiment around GlaxoSmithKline, which eased by 6p to 1014p.

Overall, the FTSE 100 strengthened to 3983.7, up 1.4 per cent or 58.1 points, while the FTSE 250 climbed to 6978.9, up almost 4 per cent or 260.5 points.

Amid low volumes ahead of the Easter bank holiday weekend, investors switched out of defensives and bought into the riskier financial stocks, which drove the market higher.

Barclays, which announced the sale of its iShares exchange-traded funds business to CVC Partners for £3bn, was among the best performers of the day, swelling in value by more than 12 per cent or 19.7p to 177.5p.

Royal Bank of Scotland was more than 11 per cent or 2.9p stronger at 29p as the shift in sentiment emboldened traders, who bought in on the recent weakness in the lender's share price. Wells Fargo, the American bank which yesterday said its first-quarter results were set to beat market expectations, helped sustain the rally in UK-listed banks.

But the strength in financials is only part of the story. Firmer metals prices and a positive production update from Vedanta Resources boosted the heavily weighted mining sector, which also helped boost the market. Vedanta itself was the best- performing blue chip of the session, advancing to 873p, up 13 per cent or 100p, while Kazakhmys, up more than 9 per cent or 39.7p at 466p, drew steam from some strength in the price of copper. The Eurasian Natural Resources Corporation was 10.7 per cent or 50.5p ahead at 521.5p.

The buoyant mood helped Marks & Spencer, up 7p at 317.25p, shrug off a new Morgan Stanley circular. The broker, which maintains an "equal-weight" stance on the retailer's stock, said the shares were already pricing in the recent positive newsflow and that, unless UK consumers begin trading up prompting big forecast upgrades, there was little further upside for now.

Predicting a 50 per cent reduction in the dividend when the company posts its preliminary results, Morgan Stanley added that despite recent policy action, and the improvement in the fortunes of the M&S food division, earnings were unlikely to recover rapidly.

On the downside, the drinks giant Diageo underperformed, easing by 1.2 per cent or 9.5p to 772.5p, amid speculation that it was eyeing America's Brown-Forman Corporation, which owns a number of well-known brands, including Jack Daniel's whisky.

Diageo was said to be one of two possible bidders for the group, which is controlled by the Brown family.

Any takeover is therefore only likely to succeed with the consent of the family, which was rumoured to be minded to sell, but only at a significant premium to the current share price of about $40. Speculators suggested that if a deal was agreed, the final takeout price may be as high as $65 per share.

On the second tier, the pubs group Marston's was 4.4 per cent or 6.5p firmer at 152.5p after KBC Peel Hunt upped the stock to "buy" ahead of a trading update, which is due next week.

PV Crystalox Solar, the silicon wafer manufacturer, climbed to 96.5p, up 6.6 per cent or 6p following a plug from Goldman, which added the stock to its "conviction buy" list, commending the quality of the company's customer base, its contractual cover, the strength of the balance sheet, and its premium margins and returns.

The various qualities, Goldman said, insulated the company from the tough operating environment in the solar sector, which faces the twin pressures of oversupply and weaker demand.

"With solar valuations having risen in the recent rally, we believe that this leaves many stocks looking exposed and that the best opportunities are offered by stocks most insulated from these effects, yet which trade at a discount to their peers," the broker said.

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