Market Report: Man leads blue chips on AHL recovery hopes

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The Independent Online

News of a rise in assets values lured the bulls into the hedge fund group Man, which claimed pole position on the FTSE 100 last night.

The stock rose by more than 6 per cent, or 15.4p, to 267.4p after an overnight update on Man's flagship AHL fund showed a 3.81 per cent rise in net asset values last week .The cheer was supplemented by some words of support from analysts at Execution Noble, who said that, contrary to recent concerns, AHL was "not broken". The comments came in response to worries about the flagship fund, whose performance has proved uninspiring of late, dragging down Man's share price as investors fretted about its impact on the company's earnings.

Execution was having none of it, pointing out that not only was AHL's long-term track record promising, with the fund delivering net returns of more than 15 per cent per year over the past two decades, but it had "recovered from even bigger draw-downs in the past". The broker admitted there was a risk that consensus estimates might come down another notch, but said investors would do well to hold on for the recovery, arguing that, by way of compensation for the wait, they could bank on the dividend.

"We think the dividend is safe," said Execution, adding that while the payout was not fully covered by earnings, "with a turn in performance, it can get covered pretty quickly". "In the meantime, Man can use its surplus cash."

Overall, the markets paused for breath, with the FTSE 100 easing by 18.29 points to 5762.06. The FTSE 250, though higher earlier in the session, ultimately failed to match Tuesday's performance, losing 13.89 points to close at 10420.12. The miners, who led the advance at the start of the week, were behind the weakness as traders banked profits as metals prices ticked lower. Xstrata, for instance, fell 7.5p to 1313.5p, while Vedanta Resources lost 16p to close at 2918p and the Eurasian Natural Resources Corporation fell to 1250p, down 16p.

Retailers were on a firm footing, with Kingfisher climbing to 229.8p, up 6.2p, and Home Retail Group adding 4.3p to 279.3p. The fashion chain Next was 44p higher at 2,253p after Citigroup turned positive, citing the strength of the company's cash flow. "We forecast that strong cash generation will drive an acceleration in dividend payments and in the £200m-per-annum share buyback activity," the broker said. Citi switched its stance on the stock from "hold" to "buy", with a revised 2,600p target price, compared to 2,200p previously.

On the downside, the commercial property group British Land lost 13.4p to 477p after UBS moved it from "buy" to "neutral". Its sector peer Land Securities was better placed, rising by 5p to 687p after the broker upped it to "buy" on recovery prospects. "We believe [Land Securities'] portfolio is well positioned for recovery, with relatively high initial yields," UBS said, adding that its own earnings estimates for the group "may prove conservative as the tenant base has proved more robust" than expected.

The broker also issued "buy" advice on Hammerson, which firmed up by 2.7p to 400p. "Despite the relatively high quality of the group's portfolio, the shares trade at an above average 11 per cent discount to [net asset value estimates for 2010]," UBS said. It revised its target for the stock to 430p from 425p, which would leave Hammerson's share price trading on an earnings and dividend yield of 4.3 per cent and 3.7 per cent respectively. "We believe this more than allows for the relatively longer-term attractions of the group's portfolio," it added.

Elsewhere, the oil and gas prospector Salamander Energy was boosted by Goldman Sachs, rising by more than 4 per cent, or 12p, to 280p after the broker revised its view to "buy". Its sector peer Soco International, on the other hand, fell 66p to 1,714p amid profit-taking. The trend was supplemented by some cautious comment from Goldman, which switched its stance on Soco's stock from "buy" to "neutral" on valuation grounds, albeit with a target price revised to 2,185p from to 2,010p previously.

The broker said that while the exploration programmes for both companies offered investors "substantial potential upside", it preferred Salamander's ratio of risks to rewards. The company is also supported by the recent convertible bond issue, Goldman added, which gives Salamander "added flexibility to take advantage of growth opportunities in the fast- growing Asian oil and gas market where it is focused".

Further afield, Connaught, the support services firm which earlier this week said it had secured a major local authority contract in Norwich, continued to recover from the recent bout of weakness, adding 10.3p to 278.1p after Collins Stewart chastised the market for focusing on the short-term pressures faced by the group.

"With the exception of some evidence of pricing pressure in the social housing repair and maintenance market, long-term fundamentals remain unchanged," the broker said. It revised its stance on the stock from "hold" to "buy" with a new 350p target price. "As a result, we reiterate that in a bull case scenario, and on a five-year view, earnings could double," it added.