Market Report: First Group boosted by easier road ahead
Tuesday 02 April 2013
Shares in the bus and train operator First Group were driven to the top of the mid-tier index after City scribblers proclaimed that it now has a smooth road ahead of it. First Group's plans to sell buses and spend less on train investment, alongside the Government's clarity on the franchise market for trains, led transport analysts at Bank of America Merrill Lynch to rate the shares a buy.
Last week the group, which carries more than 2.5 billion passengers a year, said it was in talks to extend three rail franchises following the Government's rail franchising programme.
Punters had previously been concerned about the group's need to raise equity. But Bank of America said the probability of this had "faded … given the rail franchise extensions" as well as the planned disposals in bus operations.
The shares travelled up 15p to 216.1p – the biggest one-day jump in nearly a year, according to Bloomberg.
Bank of America raised its rating from underperform, and upgraded its share price target to 240p. Its analysts think sales within First Group's bus division could bring £100m by 2015, which will boost its current profit margins.
But it is a slow journey of recovery for the Scottish group's share price, which crashed more than 30 per cent between September and November last year, when the incumbent Virgin Trains was disputing the award of the West Coast rail contract.
The Department for Transport initially gave First Group the £13bn West Coast line, but Virgin Trains, a joint venture by Sir Richard Branson's Virgin group and listed Stagecoach, launched a challenge. First Group eventually lost the contract in October, after "significant technical flaws" in the assessment process were found.
Over on the blue-chip index, optimistic investors – perhaps cheered by some spring sunshine – ignored gloomy economic news in the shape of bleak manufacturing data and a record high for eurozone unemployment. Even the resignation of the Cypriot Finance Minister did not rattle them. The FTSE 100 zoomed up 78.92 points, or 1.23 per cent, to 6,490.66, the biggest one-day move upward since 5 March.
One of the top risers of the day was Vodafone, helped by renewed bid chatter. Reports that its US joint venture partner Verizon has held talks with the US telecoms group AT&T on a break-up bid helped the shares up 5.4p to 192p. Vodafone has been the subject of speculation for months, with rumours suggesting that it might sell its stake in its Verizon joint venture in the US or that Verizon may try to buy Vodafone.
Shares in the budget airline group easyJet flew up the benchmark index ahead of its trading update on Friday. Passengers hoping to escape northern Europe's cold weather were booking up short breaks to warmer climes, and the shares soared 48p to 1,128p.
The drinks can expert Rexam was said to have been boosted by investors keen on boss Graham Chipchase's turnaround of the Coca-Cola, Heineken and Budweiser supplier. The shares were kicked up 20p to 547.5p.
Hammerson, owner of Brent Cross, got a boost from analysts at Exane BNP Paribas, who said the group will benefit in its note entitled "Who Needs Shops?".They said: "Hammerson has the right sort of properties to withstand the online threat," and rated it a buy with a 570p price target. The shares ticked up 6p to 497.9p.
Analysts at Espirito Santo slashed their rating for the temporary power supplier APR Energy from neutral to sell with a 680p price target. They think "the timing of contract delivery continues to disappoint" and the shares edged down 15p to 860p.
The broker Icap was boosted by news that a rival, eSpeed, was bought by Nasdaq from BGC Partners for around $750m (£496m). Icap added 17.7p to 308.1p.
Aim-listed Petrel Resources has completed initial work on its two "highly prospective" licensing options at Porcupine Basin off west Ireland, and the shares climbed 1.5p to 16.5p.
Rurelec, the small energy group, has been pursuing Bolivia for compensation after the South American state seized its controlling stake in the power company Guaracachi in 2010. The arbitration reaches its final hearing today, and the shares surged 3p to 13.25p.
The medical products maker Futura Medical lifted 6p to 62p when it announced an agreement with Church & Dwight Co to distribute its erection-enhancing condom CSD500, under the Trojan brand.
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