Market Report: City feedback drives gains for Centrica

Deal rumours bubbled up around Centrica last night, but traders remained wary, pinning the gas company's rise on positive feedback from a management outing in the City earlier this week.

The British Gas owner was 6.9p stronger at 338p after JP Morgan Cazenove, reassured by a recent meeting with chief executive Sam Laidlaw, finance head Nick Luff and investor relations director Andrew Page, threw its weight behind the stock. The broker said that, besides its strong competitive position in the household services market, Centrica was well placed to take advantage of the rollout of smart meters, which enable power companies to take remote readings.

"Mr Laidlaw stated that Centrica has the most advanced CRM [customer relationship management] and billing systems in the sector... [This] positions the company strongly for the rollout of smart meters," the broker explained, repeating its "overweight" view. "Centrica's current CRM system will be able to handle the increased data from smart meters, whereas competitors are likely to need significant investments in their systems."

Overall, the FTSE 100 was strong, adding 21.92 points to 5,429.74, while the FTSE 250, cheered by some reassuring manufacturing data, gained 35.44 points to 10,216.71.

After the close, the index compiler confirmed a series of changes to the make-up of the two indices. The Argos and Homebase owner, Home Retail Group, down 1.1p at 221.4p, the commercial property group Segro, down 2.9p at 263.8p in ex-dividend trading, and Cable & Wireless Worldwide, the telecoms group which was 0.8p ahead at 70.9p, are set to move down to the FTSE 250. The insurance buyout vehicle Resolution, down 4.3p at 247p in ex-dividend trading, the pumps manufacturer Weir, up 14p at 1,333p, and the engineering group Tomkins, up 0.1p at 323.2p, will move up to the FTSE 100 when the reshuffle is implemented after the close on 17 September.

Elsewhere, ARM, the target price for which was raised to 370p at UBS, was driven up to 387.7p, up 21.4p, after the Royal Bank of Scotland pointed to signs of new business. Earlier in the week, Samsung unveiled a new ARM-based processor for smartphones, tables and netbooks.

RBS analysts said that while the announcement did not mention whether the new chip also drew upon ARM's graphics technology, their checks indicated that it did, raising the prospect of higher royalties for the Cambridge-based group. Sector peer Imagination Technologies went the other way, however, falling by 11 per cent, or 42.1p, to 340.5p as the broker noted that, in the past, Samsung has drawn upon Imagination's graphics know-how.

On the downside, Barclays, which was downgraded to "market perform" from "outperform" at Bernstein, was the weakest of the blue chips, falling another 1.9 per cent, or 6p, to 308p a day after Bob Diamond, the head of its investment banking and wealth management business, was named as the next chief executive. The wider sector was also unsettled, with traders jittery after Ireland's decision to extent guarantees for banking liabilities.

The move stoked concerns about European banks, dampening the mood around the likes of HSBC, down 7.6p at 654.8p, and the Royal Bank of Scotland, down 0.28p at 45.83p. Standard Chartered was the sole riser in the sector, edging up by 15.5p to 1,870p.

Around the miners, sentiment was firm ahead of preliminary trade data from China, which is due on Friday. Commodity markets were strong, while Deutsche Bank stoked some interest after telling clients that the sector remained cheap. Antofagasta was the strongest, adding 33p to 1,109p, while Xstrata rose by 32p to 1,102p and Lonmin closed at 1,612p, up 26p. Anglo American also gained ground, adding 38.5p to 2,499p, but BHP Billiton failed to make any headway, easing by 2.5p to 1,890p amid ex-dividend trading.

An undercurrent of nervousness was evident as gold prices came close to a new all-time high, lifting the mood around African Barrick Gold, which gained 10p to 609p, and Randgold Resources, which stood firm at 6,100p, up 20p. Additional support was forthcoming from UBS, which raised its one-month gold price forecast to $1,300 an ounce from $1,230 an ounce. The silver specialist Fresnillo was also ahead, gaining 20p to 1,120p.

Further afield, Halfords, up 1.2p at 499.8p, was cheered as Citigroup reiterated its "buy" stance on the retailer, though it stuck to its "underweight" view on the sector as a whole. "Halfords offers a combination of defensive qualities, growth opportunities, a strong balance sheet and a progressive dividend," the broker said, keeping its target unchanged at 630p.

Premier Foods firmed up amid a smattering of bid speculation. Kraft was mentioned as a possible suitor, though that theory was shot down given the American group's recent acquisition of Cadbury. New York-listed Campbell Soup Company, which was mooted as a potential acquirer last week, also featured in the rumour mill, though again the chatter failed to spark any gains, with Premier ending 0.16p behind at 19.36p last night.

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