Market Report: Goldman gives builders Christmas treat

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The Independent Online

Goldman Sachs are not on too many Christmas card lists this year, but they will receive season's greetings from Taylor Wimpey and Barratt Developments after its brokers recommended that investors pile in despite the spectre of flat house prices next year.

After underperforming the FTSE 100 by 24 per cent since October, the US broker believes the housebuilders' valuation looks reasonable. Analyst Rudolf Dreyer said Wimpey may have the highest leverage in the sector, it had been "relatively aggressive in its land writedowns, and we expect future gross margin about 10 per cent as a result". Wimpey may have understated its net asset value relative to rivals, the analyst said, adding that the potential spin-off of its US operations could strengthen its finances and see it target acquisitions. The stock rose 1.3p to 35.7p.

Similarly, Goldman upgraded Barratt from "neutral" to "buy", saying the financial position of the group had "significantly improved" after its recent rights issue. He added that next month's trading statement could boost the shares in the near term, sending the stock up 1.9p to 115.9p.

Momentum on the FTSE 100 continued from Monday, although not quite as strong, helped up by the revision upwards of UK GDP in the third quarter. "It is still negative but this revision shows the economy shrank by only 0.2 per cent," said David Jones, chief market strategist of IG Index. The index closed up 34.6 points at 5,328.6.

As the oil price climbed over $73 it lifted the blue chips with it, as Opec confirmed it would not change output quotas. Royal Dutch Shell climbed 40.5p to 1807.5p, with the market still expecting the group to offload its Nigerian onshore oil fields to China National Offshore Oil Corporation for £3bn. Cairn Energy closed top of the tree as it further strengthened following news that it was to move its drilling programme in Greenland ahead by a year. It was further supported by a note from Deutsche Bank which lifted the target price from 3240p to 3410p.

There was also still evidence of defensiveness yesterday, with GlaxoSmithKline rising 25p to 1326p. Unilever was up 40p at 1990p, while Imperial Tobacco, another defensive staple, added 34p to close at 1944p.

The property group Hammerson continued to rise a day after hitting the acquisition trail with a couple of interesting deals the previous day. The first was to buy the Silverburn shopping mall near Glasgow, and it also landed five French retail projects, in deals totalling $1.1bn. Investors were buying in, sending the stock up 2.5p to 394.5p.

After initial fears that customers would stay away from the retailers because of the snow, there was a good deal of last-minute Christmas trader shopping with both Marks & Spencer and J Sainsbury rising. M&S was the strongest sector performer, lifting 4.5p to 402.6p.

It may not be good news for consumers, but an announcement from the Office of Fair Trading had some positive effect on the banks in the morning. The regulator said it would drop its battle over overdraft charges after a long-running investigation. The OFT said it would look at alternative solutions, however, after the Supreme Court ruled in November that it could not use customer protection rules to judge whether customer rules were unfair. Lloyds Banking Group was the highest, up 1.33 per cent, but by the end barely held on to positive territory. As confidence drained Royal Bank of Scotland was worst hit, giving up 88p to 28.9p.

The list of fallers barely made it into double figures by lunch, but weakened in the afternoon after US GDP numbers were revised down from 2.8 per cent to 2.2 per cent for the third quarter. Given the travel chaos it perhaps was not a surprise that Thomas Cook was the worst performer in the morning – closing down 1.6p at 227.6p – although British Airways soon nosedived past it.

The beleaguered UK flagship carrier has been through a fair bit of turbulence this month, not least the further possibility of strikes in the new year. Yesterday, it was buffeted by the US Department of Justice, which said it would have to agree concessions to secure its closer links with American Airways. The shares fell 3.9p to 189.1p.

The worst blue-chip performer of the day was Fresnillo, down 29p at 751.5p as investors decided to take profits from the miners in the run-up to Christmas.

On the second tier, Gem Diamonds was sparkling after it announced that it had set a date for more than just breakfast at Tiffany's. The group's Kimberley Diamonds arm has secured an agreement with a subsidiary of the jeweller to sell yellow diamonds from a mine in Western Australia. It rose 13p to 210.9p. Filtrona ended the day as the worst performer on the FTSE 250, giving up 7.1p to close at 179.5p.

In the wider market, Avocet Mining stormed up over 8 per cent to 93.25p as it announced that the Inata mine in Burkina Faso had started gold production. It will be running at full production in six months, the group said.

It was not such a good day for Alba Mineral Resources as its shares dropped a fifth to 1p as it continues to seek funding. The group has tapped its directors and other investors for loans.

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