Market Report: Mortgage lender evolves into a Paragon of virtue
Analysts and investors alike were cheering Paragon yesterday as the buy-to-let lender announced its first securitisation since the credit crunch. Shares in the company, which was hit badly by the financial crisis, rocketed by more than 15 per cent after it said it would raise £150m by bundling up and selling on its loans.
The mid-tier lender, which specialises in mortgages for residential landlords, put a halt to new loans in February 2008 as the securitisation market ground to a halt. It restarted last year, and since then the market has been waiting for it to once again launch mortgage-backed securities for funding.
Although the amount is not large compared with previous deals Paragon has done, City scribblers still welcomed the news, which saw the stock go up by 23.7p to 179.9p. "This is the catalyst we had identified for the stock to start re-rating," said analysts at JPMorgan Cazenove, while Stuart Duncan at Peel Hunt claimed that it meant Paragon's "business model is complete again".
Overall, a choppy session ended with the FTSE 100 62.53 points higher at 5,484.1, following a terrible three-day run in which it dropped nearly 300 points. Despite the top-tier index moving into the red early on, support came from Wall Street where stocks were rallying after strong jobs data.
Although, not surprisingly, the Fed failed to announce a new round of quantitative easing, hopes that it could be getting nearer helped commodity prices. As a result, Eurasian Natural Resources and Antofagasta bounced up 35p to 657p and by 60p to 1,174p respectively, while the gold-miner Fresnillo took pole position as it advanced 127p to 1,783p.
After reviving bid rumours on Tuesday surrounding the Nurofen-maker Reckitt Benckiser, which eased back 15p to 3,240p yesterday, the gossips turned their attentions once again to Burberry. Often the subject of speculation, the latest vague whispers suggested that the luxury brand could be about to receive an approach from an unnamed Chinese company.
The mutterings were played down by traders, however, who instead were welcoming forecast-beating figures from the German fashion house Hugo Boss. With comments from Citigroup that consumer spending would either focus on bargain or luxury products also helping, Burberry ended up climbing 72p to 1,345p.
Rumours of a more continental flavour were also doing the rounds, as mutterings claimed Volkswagen may be interested in increasing its 56 per cent stake in fellow German automotive giant Man.
Meanwhile, back in the UK, the truck-maker's namesake Man Group managed to rise before its interim results today, despite recent concerns about what they will show. The world's largest listed hedge fund climbed 5.3p to 141.3p as it moved off its lowest level for more than eight years.
Lloyds was left clutching the blue-chip index's wooden spoon. Its shares fell back by 1.36p to 29.21p after it announced that its Portuguese chief executive Antonio Horta Osorio, was taking sick leave. Also in the red were a number of stocks losing their payout attraction, with GlaxoSmithKline (down 23p to 1,355.5p) and Ashmore (down 5.5p to 325.9p) among those trading ex-dividend.
There is rarely much of a read-across between G4S and Prudential, but that did not stop Citi making the connection yesterday. After G4S, the security services giant, scrapped its £5.2bn acquisition of Denmark's ISS, Citi tried to reassure investors by highlighting the recovery of Prudential's share price following its failed takeover of AIA last year.
"We continue to view G4S as a defensive structural growth asset," said Citi analysts. With both Exane BNP Paribas and Credit Suisse upgrading their ratings, shares in G4S were driven up by 8p to 253.2p.
Down on the FTSE 250, the recent bearish rumours of a profits warning from Logica proved to be well-founded as the IT outsourcer cut full-year expectations for both operating margins and growth. It blamed poor trading in the Benelux region, where its revenues have fallen 3 per cent in the the part three quarters. Its shares duly slumped by 6.5p to 83p.
As the two-day London Conference on Cyberspace, which saw such luminaries as William Hague and Wikipedia founder Jimmy Wales meet to discuss cyber-crime, came to an end, Ultra Electronics was lifted 16p to 1,608p. Goldman Sachs used the opportunity to highlight the defence company's position on its "conviction buy" list, saying cyber-security was a "major market opportunity" and would contribute about a fifth of Ultra's sales by next year.
Shares in the oil and gas explorer Serica Energy powered up by 1.75p, or 9.72 per cent, to 19.75p on the Alternative Investment Market after the company said it was in "advanced discussions" about a new licence in Namibia.
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