Market Report: Investors switch on to ITV before BSkyB decision

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The Independent Online

A market-wide bounce and bid speculation helped ITV and Yell recover from early lows yesterday. The broadcaster and the directories group have been hit hard in recent weeks as investors worry about the impact of an advertising slowdown on the former and about the debt-laden balance sheet bearing on the latter.

But renewed talk of bid interest from Google sent Yell shares up 13.24 per cent, or 7.25p, to 62p. ITV gained 7.23 per cent, or 2.9p, to close at 43p following speculation about a private equity advance after a ruling from the Competition Appeal Tribunal (CAT).

Next week, the CAT is expected to release its long-awaited ruling on whether BSkyB must sell its 17.9 per cent stake in ITV, following the Competition Commission's decision that it cannot hold more than 7.5 per cent. However, traders played down speculation surrounding both stocks, citing a bear-market rally as the reason for their strength.

Elsewhere, the banking sector rallied with the wider market, thanks to soothing comments from the US Federal Reserve chairman Ben Bernanke. "News that the Fed may keep its emergency lending facility for Wall Street open longer is good but it is a volatile market and the bounce may not last long," said one trader. "The second-quarter reporting season for the large US banks kicks in this month and the read-across in London is unlikely to be good."

Of the lenders, Bradford & Bingley fared best last night, closing 27.21 per cent, or 9.25p, higher at 43.25p – but below its 55p-per-share rights issue price. Investors bought B&B shares despite negative analyst reports. Deutsche Bank, which cut its target price for the stock from 100p to 20p, said it would be hard for B&B to return to profitable lending given its current debt costs. Credit Suisse, meanwhile, reduced B&B's target from 55p to 25p, saying it was still cautious about the sector. It also reduced its target price for HBOS from 370p to 340p, for Lloyds TSB from 354p to 245p, and for for Alliance & Leicester from 390p to 205p. Nevertheless, Lloyds TSB shares closed 19p up at 304.75p. Alliance & Leicester, which named Alan Gillespie as its new chairman yesterday, gained 18p to close at 232.75p.

Overall, the FTSE 100 closed 89.1, or 1.6 per cent, higher at 5,529.6. London Stock Exchange took first place on the leader board, gaining 10.28 per cent, or 69p, to close at 740p following a positive update. The FTSE 250 rose 174.5, or 2.1 per cent, to 8,654.6 after shares in housebuilders rallied.

On the FTSE 100, oil and gas stocks tempered the index's gains as the oil price remained shy of recent highs. BG Group was down 16p at 1,179p, Cairn Energy lost 22p at 2,774p and BP was weaker by 0.5p at 552p. Drax, which owns and runs the Drax power station, gained 7.5p to close at 746.5p after the Royal Bank of Scotland moved the stock from "sell" to "buy". "With exposure to power, coal and carbon prices, Drax's profits are potentially volatile," RBS said. However, the bank added: "On our upgraded forecasts, we now expect Drax to distribute dividends [of] £2.7bn over the 2008-16 period, compared with its current market capitalisation of £2.59bn." The precious metals group Hochschild Mining was the worst off on the FTSE 250, falling almost 5 per cent, or 16.5p, to 319.75p. The stock was depressed after RBS moved it to "in line" after a presentation by analysts. "Hochschild has fallen heavily over the past week (down 12 per cent) and should participate in any sector bounce, while longer term we are also positive on precious metals prices," the broker said. "However, our downgrade is predicated on relative valuation. We believe there is more attractive exposure available in the sector at the moment."

Cazenove highlighted Fresnillo, which was down 13p at 455p, and Peter Hambro Mining, which lost 15p to close 1,146p, as offering more attractive exposure. Of Peter Hambro, it said: "The shares have disconnected from the gold price recently, largely due to the company outgrowing the AIM investor base, but with a move by the Main Board scheduled for the second half of 2009, coupled with best-in-calls growth, low operating costs and prospective exploration ground, we believe the shares offer compelling value on a six- to 12-month view."

The FTSE 250's housebuilders rallied after Bovis Homes, which was up 5.5p at 323p, and Redrow, which was up 3.75p at 100p, issued trading statements in line with forecasts. Traders said that while these updates did not inspire confidence in the sector, there were no ugly surprises. They also attributed the strength in housebuilding to short closing ahead of today's update by Barratt Developments. Barratt gained 38.46 per cent, or 15p, to reach 54p. Taylor Wimpey was up 4.25p at 30.25p and Persimmon rose by 12p to close at 247.75p.

On the AIM market, Tanfield, which makes battery-powered vehicles, rose by 2.55p to hit 8.2p after its chairman, Roy Stanley, picked up 4.42 million shares in the company at 5.6p each.

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