Next led the retail sector higher last night, closing with gains of more than 7 per cent amid hopes of an earlier-than-expected recovery on the UK high street, which has suffered as the recession has gathered pace.
The fashion retailer advanced to 1435p, up 98p, after Citigroup said that, for the first time in 24 months, sector earnings "look to have [an] upside forecast risk". The bullish comments were down to an analysis of household cashflow, which is correlated to consumer demand and, according to Citi, should improve throughout this year, and in 2010.
The result is likely to be a stabilisation of trends in like-for-like sales, with some benefit for the stronger players that have survived the reduction in capacity across the market.
"In assessing the valuation of Next, the share-price debate centres on the trade-off between the likelihood management can deliver earnings recovery going forward following four years of sharp like-for-like sales declines, and the group's modest forward valuation multiples," Citi said.
"In the wake of our macroeconomic analysis, illustrating the likely improvement in real UK household cashflow in 2010, we argue that the Next earnings forecast agenda is more credible, despite currency-driven input cost pressures."
In light of its conclusions, the broker advised clients to buy into the retailer, arguing that the share price discount between Next and its peers appeared "too wide".
In the wider sector, Debenhams, whose target price was upped to 75p from 70p by Citi, climbed to 63.5p, up over 9 per cent or 5.5p, while Carphone Warehouse, which has confirmed demerger plans as it posted a positive fourth-quarter trading statement, gained 7.1 per cent or 9p to 136.3p.
Tesco, which brought cheer to the sector with its results in the session before, remained firm, gaining 3p to 351.3p, while Kingfisher, the home improvement retail group behind the B&Q chain, was 7.4 per cent or 12.1p ahead at 174.8p.
Overall, the markets were steady, with the FTSE 100 gaining 43.2 points to 4,030.66 and the FTSE 250 climbing 172.71 points to 7,159.96 after the Chancellor of the Exchequer, Alistair Darling, unveiled the Budget.
New measures to resuscitate the property market, including new measures to aid the flow of mortgage financing, boosted housing stocks, including Bellway, which climbed to 762p, up 6.7 per cent or 47.5p, and Persimmon, which gained 4 per cent or 15.5p to 395p.
The announcements also lifted the blue-chip commercial property stocks, which have suffered in recent sessions as brokers warned investors against reading too much into the sector-wide rally that boosted share prices to new highs earlier this month. The rebound lifted Hammerson to 310p, up 11.3 per cent or 31.5p, while Liberty International gained 3.4 per cent or 14.5p to 445.25p.
Mortgage lenders also welcomed the prospect of some stability in the housing market. Barclays, for example, climbed to 218p, up 9.6 per cent or 19p, shrugging off some disappointing news from Morgan Stanley, which posted a bigger than expected loss for the last quarter, and the announcement by the Qatar Investment Authority that it had sold down its stake in the group to 5.82 per cent.
The QIA said the move was part of its portfolio management strategy, and it continued to remain supportive of the bank.
Lloyds Banking Group, the target price for which was lifted to 120p from 100p at UBS, was also unfazed by the news from Morgan Stanley, climbing to 100.5p, up by more than 5 per cent or 5.5p.
"As well as having been recapitalised and de-risked through its involvement in the UK Asset Protection Scheme, Lloyds has, in our view, a balance sheet structure which affords more protection than most from structural margin pressures in the current interest rate environment," UBS said, reiterating its "buy" stance on the stock.
Elsewhere, the oil explorers and producers Tullow Oil, up 6p at 766p, and Dana Petroleum, up 17p at 1193p, were relatively unmoved by Budget proposals, including tax exemptions and targeted capital gains relief, to shore up investment in the North Sea oil industry.
"We believe the industry was looking for more specific incentives, ie a further uplift on capital investment and/or target incentives to accelerate the development of West of Shetland infrastructure, and so is unlikely to be satisfied with the measures proposed in the Budget," the ABN Amro analyst Phil Corbett said.
Insurers fell back as traders digested proposed changes to the tax relief on pension contributions by those earning more than £150,000. Friends Provident was the hardest hit, losing 4.4 per cent or 2.8p to 60.8p.
Among smaller companies, Central African Mining gained almost 20 per cent or 1.4p to 8.47p after announcing a positive resource estimate for one of its coal assets in Mozambique. Analysts said the news may tempt larger players such as Brazil's Vale, which may bid for the group's coal assets.