Market Report: Lloyds support comes from an unlikely ally

  • @MrNickClark

It was a rare chance for bosses at Lloyds Banking Group to break out the champers yesterday after analysts made a rare "buy" recommendation on the stock. Surprisingly the support came from RBS, perhaps signalling the part-nationalised banks are keen to stick together in these troubled times. Ian Smillie, analyst at RBS, said Lloyds offers a "compelling restructuring opportunity" and more than doubled his price target from 60p to 150p. "Margin expansion, cost control and normalising bad debts are key to a rise in return on funded assets to 1.1 per cent," he added. Lloyds rose 2 per cent to close at 98.72p.

Others in the sector were not so lucky as KPMG predicted banks' retail arms would plunge to a loss in the second half, blaming bad loans and tough competition. Worst hit was HSBC, tumbling from a combination of KPMG, going ex-dividend, and profit-taking after previous day support from Goldman Sachs. It closed down 1.9 per cent at 643p.

Pharma giant Shire has had a cracking run in recent months, outperforming its healthcare peers by some 21 per cent. The market decided enough was enough yesterday as JP Morgan downgraded it to "neutral" . The broker said that "much of the potential near-term upside is now priced into Shire's current valuation", sending it spiralling down 2.5 per cent to 1,011p.

Shares in the drinks cans and packaging maker Rexam tumbled 10 per cent in July when it announced a heavily discounted rights issue. The group, looking to tackle its £2.7bn debt pile, announced yesterday more than 95 per cent of shareholders had picked up their rights to new shares at 253p a piece. The shares drifted closer to that, down 2 per cent at 253.9p.

Richard Burrows was not given the warm welcome he might have hoped as he was named chairman of British American Tobacco. The former Bank of Ireland chairman replaces Jan du Plessis, who leaves for Rio Tinto in November. The shares fell 1.74 per cent to 1,867p, maybe because Mr Burrows is a non-smoker, or maybe because the stock also went ex-dividend.

The FTSE 100 fell in the morning with one expert saying the markets were "generally looking a tad dodgy after the attempt to rally on Monday's falls" had petered out.

Simon Denham, the head of Capital Spreads said: "There is a sense that we are waiting for some confirmation that either we are pulling out of the mire, or that the weight of debt and poor confidence will drag us back in."

The index had been brought low by selling in China, combining with "concerns that equity markets are simply looking overbought as the summer draws to a close," according to Anthony Grech, a market strategist at IG Index.

The blue chips bounced off the session lows, with help from a rally on Wall Street closing up 3.89 points at 4,689.67. Top of that pile was Eurasian Natural Resources Corporation (ENRC), the word's largest producer of ferrochrome.

ENRC looked strong as it charged up 6.24 per cent to 825.5p. The lift came from better-than-expected results, and bullish recovery talk from boss Johannes Sittard, who added it was well positioned for the opportunities in China.

Serco Group was helped by Evolution Securities weighing in with a "buy" rating as it started coverage on the UK support sector. The group that operates London's Docklands Light Rail and, according to its website, pursues "continuous improvement relentlessly" rose 2.41 per cent to 438p. Evos says it should hit 500p as it has a "strong organic growth outlook".

On the day of the heatwave, the sun was shining on PV Crystalox Solar, which stormed up to second place on the second tier. The group makes multicrystalline silicon ingots and wafers, not a revolutionary new dish from the Fat Duck restaurant, but a core component in solar power systems. PV posted better than expected sales in the first half and is confident for the second, surprising after a string of poor results from European and US rivals. It closed up 3.6 per cent at 85.95p.

An interim management statement at Vectura lifted investor spirits early on. The pharma stock said it had £70m in cash and was confident over its prospects. It reversed late on, falling 1.22 per cent to 81p.

Hotel company Millennium & Copthorne has enjoyed a cracking month, bouncing 26 per cent since mid July, but investors called a halt to the optimism yesterday sending the stock crashing down 4.3 per cent to 308p.

The building group Wolseley was also on shaky foundations after Nomura downgraded the building materials sector, and the company itself saying it had limited earnings capability. The stock closed down 1.7 per cent to 1,385p.

In the wider market, Hampson Industries was the worst performer after a disappointing update said that trading remained difficult. The move prompted Brewin Dolphin to slash its rating to "sell" from "hold" as the shares dived 9.76 per cent to 74p.

Yell Group enjoyed huge support, and while there was little in the way of news, market-makers said a huge amount of retail investor support had driven it higher. The directories company finished up 16 per cent at 36.69p.