Market Report: Review of media sector weighs on Trinity Mirror

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The Independent Online

Trinity Mirror was weak yesterday after Morgan Stanley spooked investors by more than halving its target price for the stock, to 170p from 350p.

The broker also lowered its rating on Trinity, to "under-weight" from "equal-weight", to reflect the assumption that "the trading environment will significantly deteriorate in the second half of 2008 and in 2009.

The rating changes, which depressed Trinity by 4.39 per cent or 8.75p to 190.5p, were published as part of a wider review of media stocks, ominously entitled "Deterioration". "Our prognosis is to assume zero underlying growth in advertising growth globally [for 2009]," Morgan Stanley said.

The broker reduced its target price for BSkyB to 615p from 705p, sending the stock down by 5p to 527p. Yell, which was downgraded "equal-weight" from "over-weight" with a 175p target price, compared to 350 previously, was weaker by 8p at 95p. Taylor Nelson Sofres was also moved to "equal-weight" from "over-weight" and lost 2.75p to 250p.

Overall, the FTSE 100 ignored official data which revealed that UK consumer price inflation rose to 3.3 per cent in May, gaining 67.3 points to 5,861.9 as banks bounced and mining companies gained in strength. "The market is in denial," said Nick Brown, a trader at Evolution Securities. "People don't know which way to jump because we haven't had stagflation, or a period of inflation combined with economic stagnation, for so many years." The FTSE 250 added 88.4 points to close at 9,723.9.

On the FTSE 100, Barclays rose by 11.5p to 340.5p after reports indicated that Temasek, the Singaporean state investment vehicle that holds a 2 per cent stake in the bank, was conducting due diligence on an offer for investment from the London-based group.

HBOS was also firm and climbed by 10.75p to 326.75p after Cazenove said the stock's valuation discounted levels of impairment which it considers unlikely. "We therefore see relative value in the stock at this price," the broker said, citing the completion of bank's £4bn rights issue as the catalyst for a re-rating. Cazenove added: "Near term, the shares may be supported by a pre-close update [due this week] that is devoid of significant surprises."

A note from HSBC, in which the broker said that "exposure to the housing market is not big enough to seriously undermine the earnings of the larger commercial banks", also strengthened sentiment around HBOS.

In the mining sector, talk of further stake building by Chinalco, the Chinese state-backed aluminium giant, took Rio Tinto up by 205p to 6,090p. Firmer metals prices aided gains in the wider sector, offsetting a report from PricewaterhouseCoopers, which said that while revenue at the world's top 40 miners grew by 32 per cent in 2007, margins suffered as costs rose by 38 per cent.

By close, Eurasian Natural Resources Corporation was up 87p at 1,491p, claiming first place on the FSTE 100. Anglo American was stronger by 135p at 3,472p and Vedanta Resources was up 69p at 2,346p. Elsewhere, adverse broker comment bore on Argos and Homebase owner Home Retail Group, which was parked at second place on the FTSE 100 loser board, down 6.5p at 220p. HSBC lowered its target price for the stock to 240p from 255p, citing continuing negative earnings momentum. "Home retailing is not flavour of the month ... and will remain out of favour for some while," the broker said.

On the FTSE 250, concern about rising inflation, and its impact on interest rates, depressed house builders. "[Higher inflation] puts pressure on interest rates, and sterling hit a week high today on speculation that interest rates will have to rise later in the year," said Mark Priest, a senior trader at the spread-betting firm TradIndex. "That would represent yet further bad news for the housing industry and borrowers."

Barratt Developments stock was the second worst performer among mid-caps, losing 7.18 per cent or 7p to 90.5p. Taylor Wimpey was down 2.75p at 73.75p, Bellway lost 8p to 528p, Bovis Homes was down 5.75p at 377.25p and Berkeley was weaker by 15.5p at 755p.

On the upside, Petrofac, the international oil & gas service provider which is due to move to the FSTE 100 shortly, gained 20p to 679p after UBS upgraded the stock to "neutral" from "sell" following a detailer review.

"We estimate that the two fields [within the Don Area project, which is due onstream in 2009] could account for over 60 per cent of 2010 group net profit, and we assign a fair value to Petrofac, including the potential upside from satellites in the area, of 162p per share, net," the broker said.

On AIM, ReThink, a specialist recruitment consultancy and managed services group, made its market debut yesterday. The company raised £804,000 before expenses by placing 8,040,000 shares at 10p apiece. ReThink closed up 2.25p at 12.25p.