Market Report: Kesa draws interest as investors look to France

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The Independent Online

Kesa Electricals firmed as investors looked beyond the company's Comet chain last night. The stock gained 2.8p to 147p after RBS analysts highlighted the strength of Kesa's French business, which generate more than 80 per cent of group profits, and which the broker said had been overlooked as investors focused on worries about the company's UK arm.

Beyond France, RBS also pointed to prospect of market share growth elsewhere on the Continent. Turkish and Italian expansion plans are being ramped up, while in Spain the broker said it saw the scope for gains as trading conditions improve, or weaker competitors exit the stage.

"We acknowledge the market's concerns about the longer-term viability of Comet, as competition from a resurgent Dixons, Best Buy,... Argos and the supermarkets intensifies," RBS said, repeating its "buy" view. "We believe that Comet is unduly overshadowing profit and cash generation in the French business, and opportunities to grow market share in each of the established and developing businesses at the expense of the independent specialists," the broker added, sticking with its 185p target price.

In the wider retail sector, sentiment received a boost from some positive sales figures. Next, up 30p at 2,230p, was among the gainers after a CBI survey showed that retail sales had climbed at their fastest pace in more than six years in September, offsetting worries about the Government's austerity drive and the impending VAT hike.

Overall, the market struggled for direction, with the FTSE 100 closing at 5,578.44, up 5 points, and the FTSE 250 edging down by 10.2 points to 10,552.41. Sage, the software group which was supported by bid talk in the session before, added another 13.7p to 280p after SAP was named as possible bidder. The name failed to attract much support, however, with questions being raised about the fit between the two businesses. That said, it was enough to keep Sage lodged at the top of the benchmark index for the second session in a row.

The software group was trailed by Prudential, which also received a boost from deal hopes. The insurer was in focus after Liang Xinjun, the chief executive of Fosun International, China's largest private conglomerate, signalled an interest in buying financial services firms. Though he denied recent reports of Fosun's interest in mounting a joint bid to break up the Pru, the news aided the insurer's shares, which were 22p higher 637.5p.

Over in the banking sector, Ireland dominated the mood. Worries about the strength of Irish lenders came back to the fore after Standard & Poor's said the Anglo Irish Bank bailout may end up costing more than €35bn (£30bn) and could potentially trigger further ratings downgrades. Royal Bank of Scotland was weakest here, ending 0.76p behind at 48.05p, while Barclays fell to 309.05p, down 1.7p. Lloyds was 0.59p lower at 75.25p.

Beyond the banks, concern about Ireland and the news that US consumer confidence had dropped to its lowest level since February weighed on the general appetite for risk, dampening sentiment across parts of the mining and oil and gas sectors. Vedanta Resources was among the losers, easing by 31p to 2,261p after Deutsche Bank lowered the stock to "hold" from "buy". The broker said Vedanta's foray into the oil business and the Indian government's refusal to back the company's plans to mine bauxite in the eastern state of Orissa had dented prospects for organic growth, adding: "After the recent share price rally, we think the risks are now balanced."

Elsewhere, the engineering group Cookson rose by 1.5p to 512.5p on hopes of strong growth at its foundry business. JP Morgan Cazenove said news from last week's Commercial Vehicle Fair in Germany pointed to strength in European truck production, which could drive a strong second half for the groups' foundry arm.

"We believe that the truck industry is an important customer segment, accounting for around 14 per cent of the volume of foundry products sold in the first half of the year," the broker explained, repeating its "overweight" view on Cookson's shares.

In the housing sector, sentiment was mixed as Land Registry figures showed a small rise in house prices over August, but revealed that the pace of growth had moderated from July. Persimmon was broadly unchanged at 404.4p, down 0.1p, after Morgan Stanley revised its recommendation to "overweight", listing the stock as one of its top picks in the sector. Taylor Wimpey, the broker's other preferred stock, also failed to make any headway, closing at 28.87p, down 0.02p.

The debate about whether the online fashion retailer ASOS, up 50p at 1,139p, was too expensive continued last night after Altium said there was scope for further gains. "ASOS shares may not look 'cheap' on traditional price-to-earnings metrics, but then there are not many companies which have its growth potential," the broker said, adopting a "buy" recommendation. "We think that ASOS is worth more than its current share price because our forecasts for its long-term growth suggest that it will generate significant quantities of cash."