Market Report: Rexam advances as analysts turn positive

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The Independent Online

Rexam raced ahead last night, swinging to the top end of the benchmark index as City analysts argued that it had been oversold. The can manufacturer banked gains of 10.66 per cent or 25.5p to 264.75p after Goldman Sachs and Credit Suisse advised investors to buy into the stock, which is down over 26 per cent since the start of this year.

Credit Suisse said that, at current levels, the valuation looked attractive on both absolute and relative terms, highlighting recent statistics which show that North American demand for the company's products was holding up well despite the recession.

Moreover, the broker added, the threat of an obesity tax, which would hit soft drinks and can makers such as Rexam, has been removed.

"We believe the sell-off is overdone and unjustified and gives investors an opportunity to buy into a stable, cash-generative business at an attractive level," the analyst Lars Kjellberg said, moving the stock to "outperform" with a 350p target price.

The Goldman analyst Eshan Toorabally, equally troubled by the recent underperformance, added the stock to the broker's pan-Europe "buy" list.

Buoyed by the endorsements, Rexam was the second best performing blue chip of the day.

Overall, the market refused to give back last week's gains, with the FTSE 100 adding almost 3 per cent or 110.3 points to 3863.9 and the FTSE 250 advancing to 6270.3, up 1.7 per cent or 107.7 points, despite calls of caution from some traders, who continued to label the rally as nothing more than a "dead cat bounce" – market parlance for a temporary recovery.

The financials were behind the latest move up, with investors piling in after Barclays, up 22.6 per cent or 16.8p at 90.9p, said it had seen a positive start to the year.

The markets also welcomed the statement from Barclays that it had held talks over the potential sale of iShares, a division of its successful Barclays Global Investors (BGI) fund management arm.

Some analysts remained wary, however, with Panmure Gordon arguing that the news only underlined the high risk profile of the bank.

"In our view, contemplating the sale of one of the strongest, most capital-efficient parts of the group seems risky, especially given the focus on Barclays's relatively weak capital ratios," the broker said, reiterating its "sell" stance and 40p target price on the stock.

In the wider banking sector, HSBC was 7.3 per cent or 30.2p ahead at 442p, Royal Bank of Scotland gained 4.5 per cent or 1p to 22.8p and Lloyds Banking Group firmed by 0.4p at 47.2p.

Elsewhere, JP Morgan gave a leg-up to Marks & Spencer, which was more than 5 per cent or 13.2p ahead at 259.5p. Highlighting the stock as its top pick for the year, the broker said M&S was well placed to benefit from a re-rating as "negative investor/broker perception changes as a result of improvements in execution".

On the second tier, better-than-feared results lifted Brixton, the commercial property landlord, which was almost 17 per cent or 2.5p stronger at 17.25p.

Debenhams was also strong, gaining 15 per cent or 6p to 46p as analysts played down the prospect of an equity issue. Although some traders continue to expect a move in that direction in the near future, Altium Securities said the shareholder base "does not lend itself well to a rights issue".

The broker went on to argue that a small placing accompanied by a restructuring of borrowing arrangements was the most likely route for the retailer.

"That should provide a management team that has a successful track record with leveraged balance sheets with sufficient 'wiggle room' should conditions deteriorate faster than currently anticipated," Altium said.

CSR, the single-chip wireless device specialist, climbed to 230.25p, up 4.7 per cent or 10.5p, after Cazenove upped its recommendation to "outperform" from "in-line".

The broker made a similar change to its stance on Wolfson Microelectronics, which firmed by 1.5p to 89.75p.

On the downside, the banknote printer De La Rue retreated to 1012p, down 9p, on speculation that it may bid for the Royal Mint, which is thought to be one of several publicly owned assets the Government is considering as candidates for privatisation. Panmure Gordon aided the rumours, pointing out that as a previous buyer of Royal Mint printing operations, the company would be in "pole position, should it be interested".

"We believe this potential acquisition could be good news, though at present remain holders of the shares until confirmation of a deal and more information," the broker said.

Among smaller companies, Bateman Engineering fell back to 14p, down 15.15 per cent or 2.5p after disappointing the market with its half-year results. The company also said that it had been approached by top shareholder Global Minerals, which has asked the board to consider delisting from the Alternative Investment Market. Global has also requested an EGM, to give shareholders the opportunity to vote on a delisting.