Home Retail Group endured a choppy session last night, falling back despite a buoyant market trend.
The owner of the Argos and Homebase retail chains saw its stock decline to the bottom of the FTSE 100, shedding 3.2 per cent or 9.1p to 276.9p, after Credit Suisse lowered its recommendation to "underperform" from "neutral", citing a negative view of Argos.
"To compensate for price increases in product costs Argos is, in our view, running in the current season with start prices up around 10 per cent year-on-year and with a high and increasing level of tactical price cuts subsequent to the catalogue launch," the broker said. "This is... increasing the volatility of the business model and also seeks to mask the current higher entry prices but also what we believe is a more fundamental weakening of its price position."
The broker also raised concerns about future growth, which, given "significant evidence of maturity in the catalogue distribution channel", it said will have to rely more on internet-only products that require greater marketing and, based on its own survey, "make Argos' pricing more transparent and susceptible to price-led competition".
Overall, the FTSE 100 mounted a comeback, rising to 5165.7, up 1.6 per cent or 83.5 points, while the FTSE 250 strengthened by 1.2 per cent or 108.96 points to 9169.4. The gains accelerated in the afternoon, as traders looked to Wall Street, where leading indices rallied on the back of strong gains for technology issues. News of Xerox's deal to acquire Affiliated Computer Services and Abbott Laboratories' plans to buy a unit of Belgium's Solvay underpinned sentiment on the other side of the Atlantic.
The banking sector was mixed, with Royal Bank of Scotland declining by 0.4p to 51.6p after ING switched its stance to "sell" from "hold". The broker weighed in on recent talk of a possible capital raising, saying that "disclosures in a rights issue could substantiate" its view that, at current levels, RBS was overvalued. "A capital raising would have little effect on earnings or capital compared with the proposed Asset Protection Scheme," ING added.
Lloyds overcame initial weakness to firm up by 0.3p to 103.75p, while Standard Chartered climbed to 1509p, up 1.7 per cent or 25p, after RBS analysts raised their target price for the stock to 2000p from 1600p.
"Whether considered by operating division or product, Standard Chartered's financial success since 2006 has been primarily dependent on capital market revenues, particularly rates and [foreign exchange]," RBS said, reiterating its "buy" stance. "We agree [that] the wholesale bank has outperformed over the period but think fears of over concentration are misplaced. Delivery has been broadly based across six of the group's eight sub-regions."
Elsewhere, Legal & General rose to 79p, up 5.3 per cent or 3.95p, as traders examined weekend press reports suggesting that L&G had prepared a defence document to fight off a possible approach from Clive Cowdery's Resolution investment vehicle. MF Global said it would not be surprised if Resolution did in fact step forward, as there was a "lot of sense" in combining L&G with Friends Provident, Resolution's first target, but noted that it was clear that L&G management "appears to be set against this idea".
"We got an indication of L&G's opposition to consolidation when the [chief executive] recently voiced his scepticism of the benefits of industry consolidation," the broker said, adding: "That said, the shares are now trading at a similar rating to those of Friends Provident when Resolution first made its approach... and we believe that shareholders (many of whom are also shareholders in Friends Provident and/or Resolution) will be keen to listen to what Cowdery has to say." At the close, Friends was 0.65p ahead at 84.65p.
Halma received a boost from Panmure Gordon, climbing to 220.8p, up 4.2 per cent or 8.8p, after the broker raised the stock to "buy", setting a 255p target price, compared to 195p previously. "Halma has been overlooked, in our view," the broker said.
"Most of its £20m in annualised cost savings should stick, and accordingly we raise estimates by 26 per cent and 31 per cent for 2010 and 2011 respectively. In addition, we point out the potential for a strong second half, as well as the opportunity for bolt-on acquisitions."
Further afield, the housing sector was buoyant following the release of a positive market report. Hometrack said house prices in September rose by a monthly rate of 0.2 per cent, while the annual rate of declines eased to its lowest level in a year. The news lifted the likes of Barratt Developments, which gained 2.3 per cent or 5.7p to 251.9p, and Bovis Homes, which climbed to 470.5p, up 2.7per cent or 12.2p.
Redrow, aided by some words of support from Credit Suisse, was also firm, rising to 217p, up 2.5 per cent or 5.3p. The broker scaled back its target price for the stock to 215p from 267p to reflect the recent rights issue announcement, but stuck to its "outperform" stance, saying that by cutting its debts the house-builder stood to gain "additional financial flexibility", which would allow it to reinvest in land.Reuse content