Market Report: Daily Mail group tipped as key recovery play

A vote of confidence from Collins Stewart boosted Daily Mail & General Trust, the newspaper publisher which gained more than 5 per cent, or 16.25p, to 331.5p.

The broker published a new media sector review, noting that the newspaper sub-sector is the first to recover in a downturn. "Newspapers are generally regarded as early cycle plays given their exposure to classified advertising, which is often cut early in advance of [a] downturn," said the broker. "The notable point about our newspaper index is how early it recovered in 1990-91."

According to Collins Stewart, newspaper stocks fell with other sub-sectors, but recovered early. They bottomed out midway through the recession and doubled within 18 months, when GDP growth was still negative.

The broker picked DMGT as one its key "buy" ideas in the sector, citing, beside its exposure to newspapers, the underappreciated quality of its non-newspaper business. The wider sector, cheered by the prospect of an early recovery, also rallied and Johnston Press gained 26.09 per cent, or 10.5p, to 50.75p.

Elsewhere, the banking sector rallied again after Citigroup posted a lower-than-feared loss for the second quarter. The Royal Bank of Scotland was among the strongest, up more than 10 per cent, or 18.1p, at 197.6p. The stock was helped by a new note from Morgan Stanley, which weighed in on recent underperformance.

The broker said the upcoming interim results (due in August) should "highlight that fears surrounding [the bank's] US exposures are overblown and that monoline exposures are manageable". "Despite the deteriorating macro environment, we believe 145p [the intra-day low on 16 July] could turn out to be the bottom of the chart in the this cycle, given that the price action of the recent sell-off matches other final legs down in bear market cycles," the broker said, reiterating its "overweight" rating.

In the wider sector, traders said some of the activity may have been prompted by short closing as the various rights issue offers ended. According to Data Explorers, 5.4 per cent of RBS stock is out on loan. For Barclays, which gained 29.75p to 320.25p despite revealing that less than a fifth of its existing shareholders had participated in its £4.5bn capital issue, 8.65 per cent is out on loan. For HBOS the figure rises to 14.82 per cent. Its stock belatedly crept up to the 275p issue offer price yesterday – the offer closed at 11am, and the stock cleared the threshold a little over a half-an-hour later. By close, HBOS was up 13.75p at 282p.

Overall, the FTSE 100 gained 90.1 points to 5376.4. The strength in the banking sector, and in parts of the retail sector, offset the impact of continuing losses in the mining sector and among the oil companies.

The FTSE 250 was also strong and climbed 245 points to 8964.7.

On the FTSE 100, mining stocks were hit as metals prices remained weak. Ferrexpo, the Ukraine-based iron-ore producer, was the worst off, down 8.24 per cent, or 24.25p, at 270p. Lonmin, the world's third-largest producer of platinum group metals, was hit by an overnight drop in the price of platinum, which hit an 11-week low. By close, Lonmin was down 104p at 2410p.

Parts of the retail sector were strong after John Lewis revealed a 5.9 per cent in sales for the week to 12 July. The high-street fashion retail chain Next was up 64p at 1032p, while Kingfisher, the DIY retailer behind the B&Q chain, gained 5.9p to 109.6p. Tesco, which was down 13p at 375.8p, missed out on the rally after Delhaize, the Belgian super-market group, issued a disappointing update.

A similar read-across bore on Unilever, which was down 12p at 1441p, after L'Oreal revealed lower-than-expected second-quarter sales. The news from the French cosmetics company overshadowed a report from the Royal Bank of Scotland, whose analysts upgraded the stock to "neutral" from "sell". "Though Unilever's underperformance in developed markets remains a concern, the 31 per cent fall in the shares this year would seem to reflect adequately the downside risks to forecasts," said the broker.

On the FTSE 250, the house builders maintained their strength. UBS sparked the rally, upgrading a number of sector constituents on Thursday and yesterday Barratt Developments climbed by almost 20 per cent, or 13.75p, to 83.75p. Beside the raft of recent upgrades, traders said the sector was cheered by signs of strength in the banking sector – they cited hopes that lending constraints may be lifted, which in turn would prompt buying and the building of new homes. In the wider sector, Persimmon was up 44.5p at 336.5p, Bovis Homes gained 55.25p to 422.75p and Bellway climbed to 602p, up 63.5p.

Among smaller companies, Clipper Windpower lost 30p to 425p after HSBC reduced its target price for the stock to 550p from 835p. The broker also downgraded its rating for Clipper to "neutral" from "over-weight".

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