Market Report: Logica rises on Goldman Sachs 'buy' note

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The Independent Online

Logica strengthened last night, gaining ground amid calls that the sell-off in its stock may have been overdone.

Goldman Sachs told clients that at current levels the shares more than reflected concerns about the fate of the company's performance as the trading environment deteriorates.

Upgrading the stock to "buy", the broker said that although the information technology group's full-year results at the end of this month were likely to show a weak fourth quarter, with profits possibly coming in below market views, the Nordic and French businesses were likely to "show continued resilience" and the UK business may show signs of improvement, "which should take some pressure off the stock".

"The [current] stock valuation seems overly focused on the downside," Goldman said, setting an 85p target price on the stock, which was up more than 3 per cent or 2.25p at 71p.

Overall, the FTSE 100 firmed 21.18 points to 4,234.26, while the FTSE 250 was broadly unchanged, climbing by 0.62 points to 6,496.28.

Anthony Grech, the chief market strategist at IG Index, said that it was a "relatively uneventful" trading day, adding that "the next major turn could now depend on whether the US's trillion-dollar rescue deal can cast some light amid the ever-increasing gloom".

For now, the Obama administration's revamp of the banking rescue package failed to inspire much cheer, with UK financials tracking their US counterparts lower.

Lloyds was the weakest, easing almost 8 per cent or 7.5p to 87.4p, while Barclays, at 108.5p, was 4.3 per cent or 4.9p lower.

Elsewhere, Rio Tinto, which according to late reports is set to announce a multibillion-dollar investment from its top shareholder Chinalco this morning, was 3.4 per cent or 66p ahead at 1,969p. Under the terms of the agreement, Chinalco is expected to lift its stake in the miner in addition to assuming minority stakes in certain key assets.

Earlier in the session, UBS expressed caution about depending solely on the Chinese, saying that it was "concerned that management's primary aim may be to reach its stated target of $10bn [£7bn] net debt reduction by end 2009 rather than take their time and get the best possible deal for shareholders.

"Our position on Rio has been that the company has more options to pay down its $39bn of net debt than first appeared," the broker said, highlighting, in addition to a possible investment from the Chinese, options such as the scrapping of the dividend and a rights issue.

"We think Rio can create tension in all of these options by considering/progressing all of these, thus trying to ensure that potential investors/acquirers etc pay a 'fair price' rather than a 'knockdown' price," the broker added in a morning note to clients.

In the commercial property sector, British Land, down 5.75p at 483.25p, was said to be on the verge of launching a rights issue to bolster its balance sheet, with some anticipating an announcement with its results, which are due this morning.

Although estimates vary, some analysts reckon the group may tap shareholders for more than £600m.

Hammerson, the rival property group which announced capital raising plans earlier this week, was 1.1 per cent or 4.5p ahead at 415.25p.

The gold producer Randgold Resources was the strongest of the blue chips, gaining almost 8 per cent or 236p to 3,300p after HSBC moved the stock to "overweight" from "neutral". It said: "[The company's] portfolio of West African assets now runs the gamut from advanced exploration (Massawa) to development (Tongon) to the expansion of existing production (Loulo) to maturing and eventually closure (Morila)."

Cattles was the weakest of the mid-caps, losing more than 11 per cent or 2p to 15.5p as investors moved to bank profits from recent gains.

Wolfson Microelectronics rose 1.6 per cent or 1.2p to 79p despite some bearish comment from Goldman Sachs, which moved the stock to "neutral" from "buy".

"We believe that Wolfson's underlying cost savings excluding currency benefits are not sufficient to prevent an extended period of losses in the context of current end market realities," the broker said. It added: "Although we continue to expect long-term strategic benefits from the company's diversification strategy, we believe that R&D [research and development] requirements in 2009 will be significantly higher than the near-term revenue opportunity, suggesting a prolonged period of operating losses."

Among smaller companies, TomCo Energy – down 22.2 per cent at 0.35p – requested a suspension of its shares pending clarification of its financial position.

TomCo said contractual difficulties in relation to its investment in Israel "had resulted in an immediate funding requirement to enable the company to service its debt and to enable it to continue operating".