Market Report: Johnson Matthey gains as traders back platinum

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Johnson Matthey was among the risers as the FTSE 100 index turned lower last night after ending broadly unchanged on Friday.

The platinum refiner was marked up by 26p to 1,559p after Citigroup urged investors to make the most of the recent pullback in the share price. Johnson's valuation has fallen to 15 times forward earnings, compared to more than 17 times a few weeks ago.

Citi said the weakness offered a way into a company that had managed to boost earnings at a compound annual growth rate of 7 per cent over the past 10 to 15 years. Indeed, the recent downturn, while stemming the rate of growth, failed to trigger any meaningful falls, with earnings staying roughly flat despite waning automotive production (Johnson is the world's largest supplier of catalytic converters) and softer platinum prices.

"A recovery in [the price of platinum group metals], a weak sterling and, most importantly, a recovery in heavy duty diesel truck sales, should drive earnings back to growth," the broker said. Citigroup switched its stance to "buy" ahead of Johnson Matthey's full-year results tomorrow.

Overall, the FTSE 100 was 25.13 points weaker at 5,163.3, while the mid-cap FTSE 250 index closed 15.61 points lower at 9,621.53. The benchmark index began the session with a loss, falling as low 5,063.2 as investors sold out amid renewed concern about the eurozone's debt woes.

News from China, where manufacturing slowed as export orders sagged in May, further sullied the mood, with traders voicing worries about the possiblity of a double-dip recession in parts of the world economy.

Sentiment only strengthened after official figures showed that US spending on construction expanded at its fastest monthly rate in nearly 10 years in April, while the latest report on US manufacturing revealed that it had continued to grow last month. The data boosted Wall Street, with the Dow Jones industrial average firming up in early trading.

Prudential stood out, swelling by 34p to 575.5p as the threat of a mammoth cash call appeared to recede, with the Pru confirming that AIG had snubbed a lower offer for its Asian unit AIA. Bidding to quell disquiet among shareholders, the British company had sought to reduce its offer by $5bn.

"Pru says it is now considering its position, but unless AIG has a change of mind we believe that the deal will collapse as Pru will be unable to garner sufficient support to proceed with the acquisition," said the analysts at Panmure Gordon, reiterating their "buy" view on the stock.

Also on the upside, Scottish & Southern Energy booked a rise of 27p to 1,079p after quashing concern about a rights issue. The worries centred on SSE's bid, via a joint venture with a Canadian infrastructure company, for EDF's UK electricity distribution business. SSE said that while it may well end up with a small interest in the assets, it would limit its ambitions in a way that did not require a cash call. Other utilities also did well as investors continued to buy into defensive stocks. Severn Trent added 23p to close at 1,221p and United Utilities rose 12.5p to 552p.

On the downside, data about China's manufacturing output dampened sentiment around some miners. BHP Billiton shed 38.5p to 1,874.5p despite Deutsche Bank raising its target price for the stock from 2,220p to 2,270p. Deutsche also raised its targets for Anglo American to 3,445p and that for Xstrata to 1,600p. Anglo duly shed 13.5p to close at 2647.5p while Xstrata lost 9p and ended on 1,006.5p.

Randgold Resources went the other way, however, adding 205p to 6,195p as traders continued to raise their exposure to safe-haven investments such as gold.

Randgold's stock tends to track the price of the yellow metal, which is widely viewed as a hedge against inflation and economic stress. Citigroup raised its target price for Randgold from 4,730p to 6,090p.

Elsewhere, BP was the weakest of the blue chips, slumping by more than 13 per cent, or 64.8p, to 430p following news that its latest attempt to contain the Gulf of Mexico oil spill had failed. Disappointment at the failure was accompanied by fears of an escalating price tag as BP revealed the cost of its response to the disaster had climbed to about $990m so far. The wider oil and gas sector was mixed, with BG rising by 27.5p to 1,088.5p as US crude futures gathered pace in response to the manufacturing data. But Royal Dutch Shell, down 11p at 1,812p, failed to make any headway.

Further afield, the oil services group Wellstream, which specialises in flexible pipes, fell by about 3 per cent, or 16.5p, to 525p as Evolution Securities highlighted the potential read-across from BP's woes in America.

Evo said BP's failure to stem the leak increased the pressure for a lengthy ban on deepwater drilling, noting that "all the signs are that the moratorium will be wider and longer than previously expected".

"Potential drilling and project delays could have implications for [the] oil service sector recovery of 2011," its analysts added, highlighting Wellstream as one of the explorers most vulnerable to the fallout.