Market Report: Hopes for profits send Wolseley higher

The construction materials group Wolseley saw its shares trade higher as the bulls, lured by hopes of a turning point in earnings, outflanked the bears last night.

The stock firmed up after Morgan Stanley raised its forecasts for the group for the first time since 2006, noting the evidence of better than expected cost savings in last week's unscheduled trading update.

"Earnings momentum had taken a steep downward trajectory since October 2006.... However, Wolseley is now showing signs of self help with profits beating expectations despite the continued difficulties in [its] end markets," the broker said, reiterating its "overweight" view and upping its target price to 1680p from 1650p.

Analysts at Royal Bank of Scotland, though similarly pleased with the company's cost efficiency drive, struck an altogether bearish note on the stock. Repeating its "sell" recommendation, RBS said that while the interim results later this month "may provide relative support to the group's share price", it considered "Wolseley more than fully valued given [the] risks in the speed and scale of recovery in the group's key US, UK and French markets, as well as the risks attached to the degree to which the business can recover without cost growth and inflation at least in line" with its forecasts. In the end, Morgan Stanley's view prevailed, with Wolseley closing 40p ahead at 1590p last night.

Overall, the FTSE 100, up 51.42 points at 5405.94, inched past the 5400-point mark, while the FTSE 250 gained 135.44 points to 9479.83. The benchmark was powered by the commodity issues, with miners rising as metals prices firmed on the back of worries that the Chilean earthquake may affect supply. Kazakhmys led the way, advancing by more than 5.2 per cent, or 69p, to 1410p, while Fresnillo rallied by 4.3 per cent, or 32p, to 782.5p and Rio Tinto, which said its divestment programme had passed the $10bn mark with the completion of the sale of its Alcan Packaging Food Americas division to the Bemis Company, added 104.5p to 3468.5p.

The strength in the heavily weighted mining issues offset the weakness in parts of the insurance and banking sectors. Prudential was 12 per cent, or 72.5p, behind at 530p after announcing plans for a mammoth cash call to fund its purchase of AIG's Asian life insurance arm for $35.5bn. In the wider sector, Aviva fell by almost 4 per cent, or 15.1p, to 375.2p as news of the AIG deal weighed against recent rumours that the Pru might join hands with Resolution to mount a bid for the group.

In the banking space, HSBC was 5.2 per cent, or 37.6p, lower at 682p after its annual results failed to impress. Standard Chartered, which is due to update the market later this week, also failed to make any headway, easing by 36.5p to 1525.5p.

On the upside, Tesco rose to 433.05p, up 13.35p, after JP Morgan abandoned its negative stance, citing the improvement in the supermarket giant's sales performance in the UK and internationally, and the prospects for free cash flow generation. Moving the stock to "neutral" from "underweight", the broker also acknowledged the broader economic picture, saying: "We have been turning more positive on the UK food retail market in recent months as the country has avoided the deflationary pressures affecting other markets that we feared last year."

British American Tobacco was also strong, adding 59p to 2288.5p, after Citigroup, pleased with the earnings growth in last week's results, raised its target for the stock to 2460p. "Once again, a tobacco company has shown that it can get pricing [power] at a time when few other staples companies are able to do so," Citi said, repeating its "buy" recommendation. "BAT management said there is no sign that the excellent pricing environment is weakening in any way."

Elsewhere, the IT group Logica was flat at 119.4p after KBC Peel Hunt said that 2010 "will not be a year of recovery in the pan European IT market". "The pan-European IT services market is suffering from structural overcapacity," the broker said, reiterating its "sell" recommendation on the stock. "This is driving the volume and pricing declines that characterised the market in 2009 and will likely characterise it going forward. Logica's consulting division is most exposed to these trends."

Further afield, Salamander Energy was 4.3p firmer at 254.4p after Morgan Stanley adopted an "equal weight" stance on the oil and gas explorer and producer. While acknowledging that Salamander was entering an exploration-focused phase that could offer a healthy upside to investors this year, the broker said it preferred the FTSE 100-listed Tullow Oil, which was 10p higher at 1199p, Soco International, which gained 36p to 1570p, and Afren, 1p weaker at 80.75p.

"Afren remains a top pick," Morgan Stanley added. "The recent concerns on liquidity and Nigeria are overdone in our opinion and, if anything, our conviction on our 'overweight' rating has increased as management delivers on the acquisition strategy and provides greater evidence of Afren's technical expertise in appraisal and development."

News
people
Sport
FootballGerman sparks three goals in four minutes at favourite No 10 role
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Sport
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
athletics
PROMOTED VIDEO
Sport
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
music
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam