Market Report: Ladbrokes gains as Footsie loses its way

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The Independent Online

The prospect of higher earnings kept Ladbrokes on a firm footing as the wider market struggled to find direction last night.

The bookmaker gained 2p to 153p after UBS highlighted the potential for consensus upgrades. The broker assumes a £28m improvement in earnings before interest and tax in 2010, against consensus estimates of an improvement of £23m to £24m. Given that management has already highlighted cost savings and reduced free bets, consensus "is either assuming no improvement in the ... gross win margin" or "offsetting the improvement with lower amounts staked". "Management see no reason why the gross win margin would not revert to its historical average, which implies £18m-£19m of additional profits, and it is worth remembering that 2010 includes the World Cup, which is likely to generate additional bets in the second half," the broker said, revising its stance to "buy".

The assessment offset the impact of some bearish commentary from Panmure Gordon, which, while raising its target price for the stock to 125p from 112p, stuck to its negative view. "We believe [that] the current Ladbrokes valuation fails to adequately capture the heightened regulatory risk of an increase in gross profits tax at next month's Budget, difficult trading conditions, and likely consensus forecast downgrades," Panmure said, keeping the stock at "sell".

Overall, the FTSE 100, which enjoyed a five session-long winning spree last week, finally dipped into the red, losing 6.1 points to 5352.07 as a lacklustre start on Wall Street bore on sentiment in London. The mid-cap FTSE 250 index fared better, ending marginally higher at 9441.71, up 10.35 points. Mining stocks helped to mitigate the losses, with a number of leading stocks, including Eurasian Natural Resources Corporation, up 3 per cent or 31p at 1065p, Kazakhmys, up 28p at 1363p, and Antofagasta, up 12.5p at 905p, climbing on the back of strong commodity markets.

Pharma groups were in focus after the Obama administration renewed its push for healthcare reform in the United States, with AstraZeneca easing by 20p to 2810p. Elsewhere, GlaxoSmithKline, down 2.6 per cent or 31.5p at 1203.5p, suffered after US lawmakers published a critical report on its Avandia diabetes drug. Sector peer Shire was under pressure in early trading, touching a session low of 1338p, down 2.3 per cent, after Panmure Gordon turned negative on valuation grounds. "Shire is currently trading on a price to earnings multiple of 18.2 times for 2010 and 16.6 times for 2011, representing a premium of 22.5 per cent and 21.9 per cent to the mid-cap European pharmaceutical sector. Importantly [it is] also at a 60 per cent premium to the large-cap pan-European pharmaceutical sector," the broker said. The stock recovered to 1380p, up 10p, by the close, with market watchers citing the impact of positive commentary from Oppenheimer.

On the retail front, the analysts at Bernstein penned an open letter to Marc Bolland, who is due to join Marks & Spencer, down 8.4p at 334p, as chief executive at the beginning of May. "We remain convinced [that] M&S continues to offer material value creation opportunities, and we are glad to see that many appropriate ideas are being pursued already as part of the current plan," the broker said, scaling back its target to 390p from 410p. "However, what is still missing at this point, in our view, is an element of realism in setting the course and the targets for M&S in the medium term, practicality and expediency in combining the need for long-term investment with the necessity of short-term results [and] a sense of proportion in apportioning capital expenditure and return to investors."

Over in the banking sector, Royal Bank of Scotland advanced by 3.6 per cent or 1.25p to 35.78p and Lloyds Banking Group strengthened by 2.3 per cent or 1.15p to 51.67p as investors moved in ahead of their results later this week. Weighing in on the former, KBW reiterated its "underperform" stance, saying: "Aside from the [profit & loss] numbers, of importance will be the extent to which RBS has managed to reduce its balance sheet – particularly non-core – and curtail RWA [risk weighted asset] growth."

Elsewhere, the engineering consultancy WS Atkins was 4.5p weaker at 585p after Citigroup said that while the valuation was undemanding, the company's lack of international presence was a hindrance. "Given its UK bias, we think [the] Atkins stock will struggle to outperform a rising equity market," the broker said, repeating its "hold" view. "Perversely though, with late cycle characteristics and limited order book visibility, we also suspect [that] Atkins ... would struggle in a market setback."

Taylor Wimpey was 0.22p behind at 37.67p, with traders citing chatter regarding a placing of around 32 million shares at 38p apiece by Bank of America Merrill Lynch. Other housebuilders were also in focus, with Barratt Developments, which is due to kick off the reporting round this week, rising by 2.9p to 120.6p, Redrow adding 2.6p to 141.5p, Persimmon gaining 4.8p to 425.1p and Bovis Homes firming up by 2.5p to 387p as investors looked ahead to their results.

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