Market Report: Debenhams in fashion thanks to Goldman

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Debenhams was in focus last night, as Goldman Sachs issued a series of chunky forecast upgrades, highlighting the potential upside to the current share price.

The broker said the retailer was "set to outperform" its peers as earnings strengthen on the back of an improvement in trading conditions, a potential capital raising which will put the company on a more secure financial footing, and shift in the market's focus to mid-cycle valuations based on mid-cycle earnings. The stock could also draw support from possible news of better than expected gross margins when Debenhams posts full year results this summer.

"On our forecasts, Debenhams has some of the largest potential upside, looking at mid-cycle multiple valuations," the broker said, moving the stock to "buy" with a revised 111p target price, compared to 37.9p previously. In keeping with its bullish views, Goldman also revised its forecasts, raising earnings estimates by 90 per cent for the current year, 156 per cent for next year, and 120 per cent for 2011, helping the stock close at 92.25p, up 2.2 per cent or 2p.

Overall, it was a relatively quiet Friday, with FTSE 100 recovering to 4,417.9, up 30.4 points, and the FTSE 250 firming up by 53.73 points to close at 7,572.0.

Natural resource-related stocks powered the benchmark index, thanks to firmer metals and oil prices. Among the miners, a jump in platinum prices drove Lonmin, up 8.4 per cent or 111p at 1428p, to pole position, while stronger copper prices boosted Antofagasta, the Chilean copper producer which gained 5.2 per cent or 31p to 629p.

BG led the oil majors, rising by 49p to 1128p. Royal Dutch Shell also fared well, climbing to 1675p, up 14p, as the oil prices registered a six-month high.

Banks too were firm, amid reports that big lenders were sounding out institutional investors about the prospects for new asset-backed security issues as they seek to unclog the gummed-up mortgage market. Lloyds was the strongest of the lot, rising by 4.6 per cent or 3p to 68p, with Barclays, up 3.7 per cent or 10.5p at 297.5p, not far behind. HSBC was 2.1 per cent or 11.2p heavier at 556.5p.

Elsewhere, Marks & Spencer strengthened to 283.5p, up 1.5 per cent or 4.25p, after HSBC analysts weighed in, moving the stock to "neutral" from "underweight", with a revised 314p target price, compared to 188p previously.

Further afield, the ITV rally persisted, with the broadcaster's stock advancing to 38.75p, up another 4.7 per cent or 1.75p, following a call from the Office of Fair Trading, the consumer watchdog, for a review of rules designed to curtail ITV from abusing its market position, possibly presaging a lessening of the regulatory regime.

The news rounds off a stellar week for the company, which has seen its share price rocket almost 35 per cent over the last four sessions following words of support from Goldman Sachs and Bank of America-Merrill Lynch.

Investec, which said the OFT statement was still preliminary and looked neutral, remained wary, however, reiterating its "sell" stance on the stock. "[The] recent share price rise has been driven by a sentiment shift to a more general positive economic outlook, and trough to peak valuation analysis," the broker said. "We agree to a point, but would be cautious and take profit at these levels and if the shares run further."

Investec added: "Investors can make up their own minds on recovery – we are cautiously optimistic, but probably more cautious than optimistic currently."

Also on the upside, housing stocks strengthened, as a surprise rise in house prices overshadowed comment from KBC Peel Hunt, whose analysts advised investors to bank profits, saying that "the market is still weak and is woefully short of the levels of mortgage finance needed to restore balance or a positive environment".

As a result, Persimmon rose by 5.4 per cent or 18.5p to 364p. Taylor Wimpey was 9.4 per cent or 2.75p stronger at 32p, while Redrow gained 3 per cent or 5.8p to 195.75p.

On the downside, Lloyd's of London insurer Hiscox was unsettled, retreating to 325p, down 3.9 per cent or 13p, after Citigroup moved the stock to "sell" in a sector review. "Since the start of the third quarter of 2008 the [sector's] shares have outperformed by at least 30 per cent – justifiably, given the undemanding valuations, the migration of profitable business from the likes of AIG to Lloyd's and the strength of the dollar against sterling," the broker said. "However, much of the good news now looks discounted."

In the wider sector, Citi downgraded Brit Insurance, which was slightly higher at 191.5p, up 1.25p, to "hold" from "buy". Catlin, whose target price reduced to 400p from 420p, but which remains the broker's only "buy" rated stock in the sector, was firm at 355p, up 13.2p.

Mothercare was weak, easing to 432.5p, down 1.7 per cent or 7.25p, after Investec switched its stance to "hold" from "buy", owing to the proximity between the share price and its target price, saying: "International growth and balance sheet strength are key reasons to hold the shares, but the rating now looks fair rather than cheap."