The view that builders, as opposed to builders' merchants, were a better play on the housing recovery boosted the likes of Taylor Wimpey as the wider market firmed up last night.
JP Morgan Cazenove said investors looking to capitalise on the turnaround in the UK housing market should switch their sights from Wolseley, the builders' merchant which has enjoyed a strong run of late, to builders such as Taylor Wimpey and Persimmon. "Two of the three main markets served by Wolseley (non-residential and infrastructure) are still in decline and they account for around 50 per cent of group revenues," the broker explained, adding that while the UK and US housing markets were showing signs of recovery, the picture in Europe, where the residential market accounts for more than 60 per cent of Wolseley's sales, remains uninspiring.
"The most attractive of Wolseley's markets, is, in our view, UK housing, and we believe that exposure to a UK pure play house builder is a more attractive way to benefit from the housing recovery," the broker added, moving Wolseley to "underweight" from "neutral", and helping Taylor Wimpey to rise by 3.7 per cent or 1.28p to 36.14p and Persimmon to close at 446.8p, up 6.7p.
Wolseley also managed to clock gains, however, adding 39p to 1,724p as Citigroup reiterated its "buy" view and Cheuvreux switched its stance to "outperform" from "underperform".
Overall, the FTSE 100 was nearly a per cent or 44.8 points stronger at 5,307.34, while the FTSE 250 was 61.21 points ahead at 9,993.24 last night. The benchmark was underpinned by the mining sector, which firmed up as bargain hunters moved in to capitalise on recent losses.
Rio Tinto, Xstrata and Lonmin were among the beneficiaries as buyers waded back, rising by 83.5p to 3,198p, by 20.7p to 1,009.5p and by 36p to 1,743p respectively. Randgold Resources, which has been rising steadily in recent weeks, fell by 55p to 6,050p as traders moved to bank profits. Gold prices, which have benefited as investors sought a hedge against southern Europe's debt woes and threat of inflation, were similarly subdued last night.
The rising appetite for risk was also evident in the banking sector, with Lloyds Banking Group and the Royal Bank of Scotland recovering by 0.85p to 58.15p and by 0.56p to 47.32p respectively. Barclays and HSBC also gained ground, adding 1.15p to 305.85p and 1.5p to 650.6p respectively. In the wider financials sector, the insurance group Aviva was 5.9p stronger at 322.9p, while the sector peer Legal & General firmed up by 0.75p to 78.5p. Prudential, which priced its rights issue earlier this week, remained under pressure, losing 4.5p to 530p.
Elsewhere on the upside, Icap stood out, swelling by 18.4p to 389.6p after Panmure Gordon revised its view to "buy" in advance of the inter-dealer broker's full figures this morning. "We expect that trading conditions are improving as a result of the recent volatility pick-up [in the markets], the drivers of which are unlikely to disappear any time soon," the broker said, pointing to the prevailing concern over sovereign debt. "In the near term, we expect this to drive improving revenue run rates and earnings upgrades."
Goldman Sachs gave a push to Centrica, the British Gas owner, which rose by 3p to 287.5p after the broker, taking its cue from higher household customer numbers, upped its target price for the stock to 424p. "The last two sets of six-monthly data show Centrica re-growing its energy customer base after years of competitive erosion of its incumbent position," Goldman said. "Further growth in customer numbers and locking them in for longer are potential sources of upside to our forecasts."
Also in the utilities sector, Scottish & Southern Energy, which is due to issue full-year results today, was the subject of some supportive comment from Citigroup. The stock has underperformed the wider sector over the past 12 months, but that may change as investors receive clarity on issues such as the new dividend policy and long-term capital expenditure plans, the broker said, repeating its "buy" recommendation.
Clarity on the company's bid, via a joint venture with a Canadian infrastructure fund, for EDF's UK electricity distribution network could also act as a catalyst, the broker added, helping SSE to rise by 18p to 1,101p.
"The assets are expected to fetch somewhere in the region of £4.5bn. If this is the case, then SSE could be expected to raise around £600m to £800m of new equity to fund its share," Citi said, pointing out that the preferred bidder was expected to be announced before the end of June. "With a market capitalisation of over £10bn, this would be a modest sum to raise."
Further afield, the fund manager Gartmore was 2.8p weaker at 141.8p after Morgan Stanley trimmed its target price for the stock to 150p, pointing out the risk from the group's exposure to European equities. "With [around] 40 per cent of AUM [assets under management] in European equities, Gartmore remains sensitive to equity market volatility given European economic uncertainty," the broker said, sticking to its "equal weight" stance.