Market Report: Rebound hopes see Yell's number come up
Thursday 15 April 2010
The directories group Yell continued to gain ground last night as traders piled in on recovery hopes.
The stock suffered sharp falls during the financial crisis, with the bears charging in on worries about the structural pressures posed by the internet, declining advertising revenues and the company's mountain of debt. In recent weeks, however, sentiment has shifted, with the bulls returning to capitalise on the improvement in the economy. Indeed, with the debt question answered by refinancing moves, and with the advertising market showing signs of life, Yell has become one of the market's most favoured plays on the recovery. Its shares closed 4.15p higher, up more than 8 per cent, at 54.65p last night.
UBS agrees with the trend, saying that, notwithstanding strong gains in recent sessions, the momentum in Yell's shares was likely to persist as the upside became clearer. The company's full-year results could provide the catalyst for the next leg up, the broker added. It said that, while Yell was unlikely to surprise on the reported numbers, "the mere absence of downgrades could push the shares higher". "Separately, we believe management's suggestions of 'broadly flat earnings' for March 2011 may prove conservative," UBS said. It reiterated its "buy" view, with a revised 65p target price, compared to 60p previously.
Overall, a round of upbeat corporate and economic news from the US boosted the London market, with the FTSE 100 touching its highest level since mid-2008 at one point. At the close, the benchmark was 34.59 points stronger at 5,796.25, while the FTSE 250 rose by 76.76 points to 10,495.64. Pleasing results from the chip-maker and technology bellwether Intel were supplemented by better than expected earnings from the banking group JPMorgan Chase, cheering traders on both sides of the Atlantic. Sentiment was further boosted by some positive data from the US retail sector, with Commerce Department figures showing a jump in sales last month.
The newsflow prompted a turnaround in the mining sector. Traders who had spent much of Monday and Tuesday banking profits bought in on hopes of recovery. Metals prices duly ticked higher, helping the Eurasian Natural Resources Corporation to rise by 48p to 1,245p and Kazakhmys to climb 29p to 1,556p. Xstrata and Antofagasta also strengthened, adding 30p to close at 1,291p and 16p to 1,037p, respectively.
Burberry led the way among the retailers, gaining 20p to close at 717p after Deutsche Bank said that not only did it benefit from the weak pound, but the potency of the Burberry brand meant it was well placed to capitalise on strengthening trends in the luxury goods market.
The fashion chain Next fell back amid a round of profit-taking, easing by 31p to 2,292p. Home Retail Group, the owner of Argos, was also marginally lower, falling by 0.9p to 294p as Credit Suisse reiterated its "underperform" stance on the shares, based on a catalogue pricing survey which suggested that Tesco was "taking a more aggressive pricing stance against Argos versus previous seasons".
The broker also played down recent chatter regarding the possibility of bid interest from Asda. It said that Asda, owned by Wal-Mart, was likely to use today's presentation to investors to lay out an aggressive strategy to boost its non-food business organically, rather than by seeking acquisitions, and it would in turn look to put additional pressure on Argos. At the close, Tesco, which was held back amid a round of profit-taking, was 3p lower at 446p.
Further afield, Bank of America-Merrill Lynch undermined sentiment around the engineering group Bodycote, which fell 4.5p to 202.2p after the broker switched its stance to "underperform" on valuation grounds.
Merrill said that while Bodycote's first-quarter update was likely to be positive and may well lead to upgrades in consensus earnings estimates, the market was already anticipating this, with Bodycote trading on high short-term valuation multiples.
Elsewhere, UBS issued a warning about Soco International's valuation, moving the oil prospector to "neutral". It said the stock, which closed 5p lower at 1,665p, was broadly in line with risked net asset values. "We believe [the recent strength] is largely due to heightened expectations and momentum ahead of potentially company-transforming drilling in the second half of the year, and partly due to a strengthening oil price," UBS said.
Also on the downside, shares in Domino's Pizza UK & Ireland fell by 17p to 341p following some bearish comment from Panmure Gordon. The broker said the current valuation failed to reflect the challenging outlook for growth in like-for-like sales, which it warned may be come under pressure as the economic picture brightens.
Initiating coverage on the stock with a "sell" view, Panmure said: "Domino's Pizza boasts a virtuous business model that has consistently delivered results ahead of market expectations. However, as the economy improves, advertising costs increase and the competition strengthens, we think like-for-like sales growth will be below trend, consequently reducing earnings upgrade potential."
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