Market Report: Kingfisher flies high after broker upgrade

Positive broker sentiment boosted Kingfisher, the home imp-rovement retailer, which strengthened amid a mixed mood in the wider market.

Analysts at Bernstein Research came to the company's aid, arguing that despite choppy trading in the short term, Kingfisher was well positioned to emerge strong when the economic headwinds ease.

"On the one hand, improved cost efficiency should allow Kingfisher to offset continuing like-for-like sales declines, limiting the possible negative impact on earnings per share (EPS). On the other hand, we would anticipate that even in the face of disappointing EPS performance versus expectations, the stock would not materially de-rate considering that deep value investors with a medium-term investment horizon would likely profit from contingent share price weakness to buy deeper into the stock," the broker said. It upgraded the stock to "outperform".

Bernstein added that, although no longer fashionable in light of the property market slump, the company also retains a "very important real estate base... which would cover around 80 per cent of its EV [enterprise value] as the share price hovers below 120p".

The endorsement helped the stock trade up by 3.1 per cent, or 4p, to 131.5p.

Overall, the FTSE 100 eased by 21.4 points to 3,693.8. The FTSE 250 was better placed, rising above the 6,000-point mark with gains of 71.8 points to 6,026.6.

Financials continued to rally, with insurers, including Legal & General, up 8.2 per cent, or 2.2p, at 28.9p, and Prudential, up 3.4 per cent, or 8.75p, at 259.25p, recording another session of gains. Aviva was also strong, gaining 8.2 per cent, or 16.2p, to 213.5p on reports ING Canada was considering a bid for its Canadian operations.

Barclays fared the best in the banking sector, adding 3.7 per cent, or 2.5p, to 70p as investors awaited more news on whether it would participate in the Government's asset protection scheme. HSBC was the subject of volatile trading, easing by 6.2 per cent, or 25p, to 374p, as it prepares to get its rights issue under way.

Lloyds Banking Group was the worst performer here, slumping by 12.4 per cent, or 6.3p, to 44.5p as investors took profits after the previous session, when it gained more than 16 per cent. Renewed concern about the prospect of further dilution was said to be a key factor behind the move, which left the stock at the bottom of the Footsie.

Further afield, oil and gas prospectors were on the back foot after Cairn Energy placed 5 per cent of its share capital to raise funds. The share price reaction – Cairn closed down almost 4 per cent, or 74p, at 1,796p – was pinned on the resulting dilution, with analysts generally expressing confidence in the move and the company's prospects.

Tullow Oil, whose target price was upped from 890p to 1,010p at Deutsche Bank, was caught in the downdraft and fell 6.7 per cent, or 54.5p, to 758p.

Land Securities retreated to 346.75p, down almost 3 per cent or 10.5p, after Credit Suisse, which moved the stock to "underperform" from "outperform", voiced concern about the property group's covenant headroom and the potential exhaustion – despite the recent rights issue announcement – of available funds if capital values decline sharply.

The broker was more positive on Hammerson, which rose 3.8 per cent, or 8.5p, to 231.5p, after being upgraded from "neutral" to "outperform". "On our estimates, Hammerson offers an attractive mix of having the highest liability cover and a relatively attractive valuation case," Credit Suisse said.

Cookson surged to 13.75p, up 14.5 per cent, or 1.75p, on what was said to be a short squeeze.

IG, the City spread better which lost about 30 per cent of its value after positing an interim update in the session before, made a partial recovery to 183.25p, up 1.8 per cent or 3.25p. Goldman Sachs, which moved its target for the stock from 340p to 280p, said the price move was an "over-reaction" despite evidence of slowing growth in mature markets such as the UK, arguing that the "fundamental attractions", such as the company's strong market position, remained in place.

Redrow was broadly unchanged, easing by just 0.5p to 145.75p. Merrill Lynch, which moved the stock to "buy", said that whatever the consequences of recent stake-building by Steve Morgan, the former boss and founder of the housebuilder, the company's relative underlying net asset value attractions were likely to come to the fore.

Among smaller companies, Johnston Press slumped by 27.2 per cent, or 2.1p, to 5.6p after disappointing the market with its preliminary results, saying advertising revenues had continued to slide sharply since the beginning of this year.

In response, Numis's media analyst Lorna Tilbian said the future of the regional newspaper publisher "as an equity investment is hanging in the balance", owing to concerns about the balance sheet. Falling advertising revenues meant that the company was paying down debt at a slower rate than anticipated, she said, arguing that the equity was at "considerable risk" until there were further details of disposals or debt refinancing.

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