Market Report: Dividend let down sees BT miss out on bounce back

Investors in BT have been licking their lips recently at the prospect of a dividend hike. Ever since the telecoms giant announced new plans last month to tackle its massive pension deficit, hopes have been rising that a large increase to shareholder payouts would be the next step for the company.

Yet yesterday the City was on the receiving end of a wake-up call. JPMorgan Cazenove's Carl Murdock-Smith was the party pooper, with the analyst saying "hopes for a... 'hike' may be disappointed" and that a more likely scenario would be BT increasing the dividend "sustainably over time".

He also warned its results next month could see revenue guidance for the next financial year drop, claiming the group's target to return to revenue growth (excluding transit revenues) was "at risk" because of regulatory changes that will hinder its wholesale business, Openreach.

As a result, Mr Murdock-Smith decided to remove his "buy" recommendation, although he did raise his target price from 210p to 240p. In response BT missed out on the general bounce, sliding 5.4p to 213.2p, which – traders pointed out – was more than 3 per cent lower than where it was before announcing the new pension deal.

Not everyone was so downbeat, however. Credit Suisse's analysts decided to raise their target price to 250p and keep BT's "outperform" rating, arguing there was "still substantial scope for medium-term cost cutting that is not reflected in consensus forecasts".

After Tuesday's sharp sell-off had seen it finish at its lowest closing price of 2012, the FTSE 100 managed to shrug off a cautious start to trading yesterday and bounce up 39.19 points to 5,634.74.

The rally was being helped by the banks after HSBC's scribblers decided to upgrade their advice on the European sector to "overweight" for the first time in four years. Pointing out that earnings have dropped by two-thirds since 2007, they said there was now a "glimmer of light at the end of the tunnel" and that a "case can be made for over 50 per cent upside".

While Lloyds moved 0.79p higher to 30.59p, Barclays advanced 5.8p to 212.1p. The latter was given a further push by Investec's banking guru Ian Gordon raising his rating to "buy" in response to a run that has seen its share price lose around 18 per cent over the last eight sessions.

At the same time, Royal Bank of Scotland (RBS) managed to recover from an early fall to close 0.54p better off at 25.26p following the return of speculation claiming a deal between the UK government and Abu Dhabi could be close. Following reports last month that the two were in talks over a possible sale of part of the former's 82 per cent stake in RBS, the vague rumours suggested up to a fifth of the bank may be sold for around 35p a share.If true, this would still be well south of the 50p a pop average paid by us taxpayers.

The commodity stocks were also helping the modest rebound, with Antofagasta and Fresnillo jumping up 38p to 1,110p and 52p to 1,568p respectively. The miners were helped by forecast-beating overnight figures from US aluminium giant Alcoa.

Down on the FTSE 250, with Melrose reportedly getting close to a major acquisition, some in the Square Mile were speculating over who the manufacturing buyout firm may have its eye on. Oriel Securities' Harry Philips said he believed it could be a US-based target, adding that a deal would be "a considerable catalyst for the share price" as Melrose shifted up 6.9p to 406p.

Fashion chain SuperGroup surged up 29p to 607p in the wake of the latest data from the British Retail Consortium showing retail sales last month were 3.6 per cent higher than March 2011.

However, despite the welcome boost for clothing retailers, the figures did not stop blue-chip Primark-owner Associated British Foods from stretching its losing streak to a fifth, straight session by retreating 1p to 1,186p.

Thomas Cook closed 0.5p worse off at 22.75p, having added more than 13 per cent on Tuesday after announcing it was nearing a new deal with its banks. Reports from France claimed the small-cap tour operator had hired an unnamed bank to help with a potential sale of its business in the country, although City sources played down the prospect of a disposal.

ZincOx was being thrown out with the rubbish on AIM, sinking 8.4 per cent to 69.4p on the zinc producer's admission that its new recycling plant in South Korea will not open until May thanks to a broken valve.

Roxi Petroleum slumped 14.81 per cent to 2.88p after the explorer announced it was plugging and abandoning its NK-10 well in Kazakhstan. Meanwhile, PSG Solutions shot up 19.35 per cent to 148p as the property information firm revealed a tender offer that could see it return more than £4.1m to investors.