Market Report: 'Internet-proof' Dixons on the up

Has electrical retailer Dixons managed to "internet-proof" itself? Analysts at Deutsche Bank think the loss-making retailer may still have a bright future ahead of it. The impact of shoppers spending on the internet rather than at its stores could be reaching its apex they claim.

Earlier this week Dixons Retail reported a first-half, pre-tax profit of £22m, down from £25m last year. But its UK business – which also runs Currys and PC World – returned to profit for the first time in five years.

Deutsche's analysts think it has "credible plans to resolve most losses" and claims it has made "significant milestones" by making its business "internet-proof". Its prices are now more similar to those found on the internet at rivals such as Amazon.

Rival Comet went into administration in early November and plans to close all its 236 stores shops by 18 December if a buyer cannot be found. The demise of Dixons' UK rival will help the group and Deutsche said it is "increasingly confident in the longer-term sustainability of the group."

Analysts at Seymour Pierce reiterated their buy recommendation and upped their target share price to 35p while analysts at Exane BNP Paribas raised their rating to neutral – hold – and gave it a 25p share-price target.

Its shares charged to the top of the mid-cap index finishing up 6.7 per cent, having gained 1.73p to 27.5p.

Sellers won the day, with the FTSE 100 index ending down 3.48 points to 5,866.82 after peaking above 5,900 during the afternoon. But yesterday's decline was a small drop at the end of a positive week for UK equities.

Angus Campbell, head of market analysis at Capital Spreads, said: "Investors have rushed into equities in the past few days in the fear that they might miss out on the usual Christmas rally, but it isn't just early festive cheer that's attracting the buyers as the fundamentals have improved too."

Eurozone issues have eased but the remaining big concern for investors is the looming US fiscal cliff.

The benchmark index gainers included Aberdeen Asset Management which got an upgrade from analysts at Morgan Stanley who raised their share-price target to 375p and its shares ticked up 4.8p to 338p.

The UK's long-awaited Energy Bill ensured analysts focused on utility companies and Morgan Stanley's energy experts listed their top picks in the sector.

With energy bills rocketing, some punters might not fancy throwing even more money at the sector. But for those who do, Morgan Stanley said it is time to pile into National Grid but dump shares in SSE.

It slapped an underweight – or sell – rating on SSE, the UK's second-largest energy supplier, and said: "Without a recovery in power prices we see limited growth."

It's also worried about the dividend cover. Morgan Stanley gave it a share price target of 1,170p and its shares reversed 11p to 1,425p.

National Grid, albeit down 1p to 705p, is looking more attractive. Morgan Stanley's scribes rate it overweight – or buy – and gave it "top pick" status with a share price target of 775p, up from 730p. Morgan Stanley thinks there is scope for more cost cuts and the stock "offers a fairly safe 2013 dividend yield of 6 per cent and dividend growth of 3 per cent".

Chemical groups Johnson Matthey and Croda International both got upgrades from analysts at Credit Suisse yesterday. Johnson Matthey, upgraded to outperform and given a share-price target of 2,400p, gained up 11p to 2,399p, and Croda, upgraded to neutral, edged up 30p to 2,381p.

Back on the mid-cap index, hedge-fund group Man Group continued its gains this week and jumped 0.25p to 76.8p as long-rumoured bid speculation continued.

More Thomas Cook directors were buying into chief executive Harriet Green's turnaround plan. After she bought 500,000 shares on Wednesday, chairman Frank Meysman bought 100,000 shares as did two other directors, while Peter Fankhauser, chief executive of UK and Europe, snapped up 170,000 shares. The travel group's shares were static at 26p.

Over on Aim, gas-to-liquids technology group Oxford Catalysts Group slid up 32.25p to 146p after British Airways committed to purchase sustainable jet fuel for 10 years from a plant that Oxford works on.

BUY

Sound Oil

Buy shares in the Italian-focused oil explorer Sound Oil, urge analysts at Westhouse Securities. Oil explorers can be tricky investments, usually reserved for the brave, but with key assets that yield a value of $238m (£148m), they give it a 3.2p share price target.

HOLD

Ceres Power

Don't give up on Ceres Power – hold on to your shares, Peel Hunt insists. They say the new investors in the energy company will give it a "new lease of life" and although the "performance of the technology is still ongoing" they rate it a hold at a share price target of 3p.

SELL

Royal Bank of Scotland

Investec's Ian Gordon is calling for punters to sell shares in Royal Bank of Scotland again. He doesn't blame them for their failure to sell their Indian business and said the "incremental wind-down costs should be modest". But he added: "We don't worry about run-off capital – just the anaemic outlook for earnings and returns."