Market Report: Lloyds trails rival banks as analysts weigh in

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The Independent Online

Lloyds Banking Group lagged behind its UK-focused peers last night, as brokers analysed the potential implications of the bank's plans to redeem Government-owned preference shares. Like other lenders, Lloyds has been on an upward trend, with its shares climbing by more than 40 per cent since the beginning of last month. But the tide may turn, if analysts at Société Générale are correct.

The broker, which maintains a "sell" rating on the bank's stock, said the completion of the placing and open offer was likely to mark the removal of the "final potential positive catalyst" for investors. Following the transaction (the new shares are likely to begin trading in mid-to-late June, according to the broker's estimates), the fundamentals are likely to hog the spotlight ahead of the bank's half-yearly results in August, which SocGen warns may be disappointing, both on account of revenue momentum and bad debt impairments.

Separately, Exane BNP Paribas said the terms of the transaction discounted the potential for windfall gains for institutional investors. The key here is the removal of the excess application facility. When the open offer was first announced in March, there were no plans for a rump placing and any unsubscribed new shares were to be made available through the facility, Exane pointed out yesterday.

Some retail shareholders were expected to miss out on their rights, despite the compelling economics caused by the recent strength in the Lloyds share price, leaving extra stock for institutional investors, who were expected to pick up the leftovers by tapping into the facility. "Cancellation of the [facility] removes the source of windfall gains," the broker said, labelling the revised terms a disappointment for those who were hoping to accrue gains at the expense of passive investors.

At the close of play, Lloyds was up 2.4 per cent, or 2.3p, at 100.3p, but was behind Royal Bank of Scotland, up 4.4 per cent, or 1.8p, at 43.1p, and Barclays, up 5 per cent, or 14p, at 294.75p.

Overall, the FTSE 100 was 35.8 points higher at 4,482.25, while the FTSE 250 gained 121.69 points to reach 7,698.32.

Miners such as Anglo American, up 7.5 per cent, or 112p, at 1,600p, and Xstrata, up 5 per cent, or 31p, at 648.5p, and commercial property companies, including Land Securities, which was up 6.2 per cent, or 30.5p, at 519p, gained ground as traders moved to buying on the weakness engendered by the recent profit-taking trend.

The inter-dealer broker Icap climbed 5.6 per cent, or 22.5p, to 422p after posting results that beat analysts' forecasts, including a healthy rise in full-year pre-tax profits.

Elsewhere, RSA Insurance gained 3.1 per cent, or 4p, to close at 133.1p, after JP Morgan switched its stance on the stock to "overweight", citing its recent relative weakness. "RSA provides cheap access to the Nordic insurance market through its subsidiary, Codan," the broker said. "In our opinion, the market undervalues this asset as part of the group."

On the downside, Marks & Spencer was the weakest of the blue-chip companies, falling by 8.1 per cent, or 27.5p, to 311.75p after unveiling a dividend cut with its full-year results.

Further afield, on the FTSE 250, disappointing updates undermined sentiment the surrounding the precision instrument maker Spectris, which fell almost 14 per cent, or 81.5p, to 503.5p, and the business processing company Xchanging, which fell by almost 12 per cent, or 24.5p, to 181.5p. The conference and exhibitions organiser ITE, which fell almost 7 per cent on Monday after posting its interim results, was down another 2.5 per cent, or 2.25p, at 88.5p.

On the upside, an upbeat earnings report helped SSL, the maker of Durex condoms, increase its price by 9.6 per cent, or 44.25p, to 504p.

The engineering group Cookson was up 8.8 per cent, or 19.5p, at 241p, thanks to Citigroup, which upped its target for the stock from 210p to 300p. The broker, which maintained a "buy" rating on the shares, said although Cookson's interim management statement suggested minimal profits for the year to date, the fact it was not making losses "could be seen as positive", given the fall-off in underlying revenues.

The newspaper publisher Daily Mail & General Trust was up almost 5 per cent, or 15p, at 318.5p as investors awaited its half-year results, which are due out tomorrow. Investec, which weighed in on the stock last night by reiterating its "buy" stance, expects no surprises in the headline numbers because a detailed pre-close statement has already been published.

Among the smaller companies, the specialist software group Delcam fell by 10.6 per cent, or 25p, to 210p after it told the market in an update that its trading performance had declined against budget, particularly in software sales.

The oil and gas prospector Circle Oil went the other way, climbing by 10.2 per cent, or 3p, to 32.5p, after announcing an oil and gas find at an exploration well at its onshore Gemsa concession in north-west Egypt.

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