Market Report: Kazakhmys climbs on copper price hopes

Kazakhmys was the strongest of the blue-chip miners last night, rising by more than 4 per cent, or 40p, to 954p, as investors piled in on hopes of copper price gains.

Analysts at Bank of America-Merrill Lynch said stocks exposed to the metal stood to gain as better economic times were likely to bring supply constraints back to the fore. This in turn should drive prices, the broker explained, raising its 2010 copper price forecast by 59 per cent.

"We believe the structural supply shortages have not been resolved for many industrial metals," Merrill said. "Copper concentrates, for instance, remain in short supply. This is not set to change through 2010 and we expect the copper market to move into deficit by 2011."

Kazakhmys, "with its higher operational and financial leverage", was likely to outperform during a copper price spike, the broker added. Besides upgrading the stock to "buy", Merrill upped its earnings estimates for the group by 74 per cent for 2010, and by 61 per cent for 2011.

The broker was less keen on Fresnillo, the silver miner which eased by 1.2 per cent, or 7.5p to 632p. "We believe industrial metals could outperform precious metals on the back of a global economic recovery. While we continue to see Fresnillo as a world-class silver producer, we do see the shares as fairly valued," Merrill said, downgrading the stock to "neutral" from "buy".

Overall, the FTSE 100 weakened by 24.24 points to 4647.13, while the FTSE 250 edged up by 23.57 points to 8266.08, as the profit-taking trend persisted in parts of the market, offsetting gains elsewhere.

Lloyds went to pole position on the FTSE, rising to 93.2p, up 10.6 per cent or 8.93p, after posting interim results, unveiling pre-tax loss. Traders attributed the share-price rally to the comments suggesting that impairments may have peaked in the first half. The wider sector was pleased by the prospect, with the Royal Bank of Scotland, which is due to update the market tomorrow, rising to 48.7p, up 4.4 per cent or 2.07p, and Barclays advancing by 2.4 per cent, or 8p, to 336.5p.

Elsewhere, on the down side, oil companies were weak after oil prices fell in response to the latest US government inventory data, which evidenced a build-up in crude stocks. Royal Dutch Shell was the weakest here, easing to 1528p, down almost 4 per cent or 62p, while BG retreated to 999.5p, down 3.6 per cent or 37.5p.

On the second tier, Aegis, which was supported by an Altium circular in the session before, enjoyed another positive session, rising by 2.6 per cent or 2.2p to 87.8p following words of support from Goldman Sachs. Calling the market's stance "too bearish", the broker added the stock to its widely followed "conviction buy" list of stocks.

Recent underperformance has left Aegis – the cheapest agency stock, according to Goldman – undervalued, while consensus estimates for both the first-half and the full-year period "are too cautious", the broker said, sticking to its 122p target price for the shares.

"Reuters' first-half consensus implies a year-on-year decline of close to 14 per cent in organic revenues and 240 basis point margins in the second quarter," Goldman said,

"However, given the positive impact of new business in the second quarter, we believe organic revenues will be down less than 13 per cent, and given the restructuring costs already taken, headline margins should only be down 200 basis points."

Further afield, house-builders were in focus after Taylor Wimpey spoke of signs of stability in the housing market. The stock, down 3.2 per cent, or 1.26p, at 38.75p, was unsettled nonetheless, as the market digested news of further write-downs. In the wider sector, fellow house-builder Barratt Developments rallied to 214p, up almost 7 per cent or 13.4p, thanks to UBS, which upped its target price for the stock to 240p from 180p, while reiterating its "buy" stance on the prospect of a possible equity issue.

"Given that the group has already lost out on some attractive land opportunities because of a relatively inflexible cash-deployment situation, we expect an equity issue may be made in due course," the broker said, adding that such a move would allow the group to purchase land at the bottom of the current cycle, while putting it on track for improved profitability in the years ahead.

Also on the upside, JP Morgan moved Arriva, which was almost 7 per cent or 29.7p stronger 474.5p, to "overweight" in a new transport sector review. The broker was less keen on sector peer Firstgroup, which was broadly unchanged at 346p, down 2p, after being downgraded to "neutral" in the same review.

Bank of America-Merrill Lynch supported VT, which edged up by 0.7p to 461.5p, after the broker issued a "buy" note, highlighting potential public sector opportunities.

"The growing consensus that the UK Government will have to curtail public spending is a potential source of opportunity for the outsourcers," Merrill said. "It seems likely that an efficiency drive will entail a greater role for the private sector, something that VT specialises in."