Market Report: Unilever builds on broker's bullish views

The consumer goods giant Unilever was among the strongest of the blue chips as traders continued their search for bargains last night.

The Anglo-Dutch group, which ended 23p higher 1,935p, has been lagging behind its peers, with the valuation gap between Unilever and the continental players Nestlé and Danone standing at around 12 per cent on Bank of America Merrill Lynch's estimates for 2011. The weakness reflects concerns about recent news of a price war with Procter & Gamble in India, the broker said, sensing an opportunity ahead of what should be strong quarterly results at the end of this month.

Beyond the results, the shares should strengthen as investors refocus on the company's exposure to fast-growing emerging markets, with Unilever benefiting from the highest exposure of any food company at 50 per cent of sales. The company also boasts one of the highest levels of exposure in the wider consumer space, Merrill explained, switching its stance to "buy". "Our upgrade is not based on a change to our view of the fundamentals – our earnings and price target remain unchanged," the broker said. "We continue to favour Nestlé as the long-term pick within the European food space, but believe the relative share price performance has created an attractive buying opportunity."

Overall, the quarter ended with a whimper, with the FTSE 100, up 7.32 points at 5,679.64, closing broadly unchanged and the FTSE 250 shedding 20.86 points to 10,165.28. The bulls took a hit in the afternoon, with traders expressing disappointment at a worse-than-feared report on US private sector payrolls. This was supplemented by renewed concerns about Greece. Sentiment was not helped by Moody's, the ratings agency, which downgraded five Greek banks.

British Sky Broadcasting led the risers on the benchmark index, advancing by 20p to 602p, after Ofcom said the pay-TV provider must reduce what it charges rivals for its sports channels by more than 20 per cent. The market reaction was down to the fact that the ruling was widely expected and therefore already discounted in the share price, while some of the wholesale price caps were better than forecast by analysts. For its part, Sky said it will appeal against the ruling.

Of the other risers, the advertising group WPP gained 6.5p to 683p after its French rival Publicis forecast "strong growth" in next year's sales, while reporting improving trends so far this year. "2011 looks like being the year when things get going again," Publicis's chief executive, Maurice Levy, said at a breakfast organised by a French financial journalists' association. Banks were also stronger, with Lloyds rising by 1.4p to 62.77p amid bargain hunting. Barclays rose by 2.3p to 360.3p after Morgan Stanley analysts, returning from a banks conference, reiterated their positive stance on the lender's shares.

Elsewhere, the transport group Go-Ahead closed broadly unchanged at 1,404p, down 1p, after UBS kicked off some deal talk. Adding the stock to its mergers and acquisition watch list, the broker said that, given the ongoing consolidation in the European public transport sector, Go-Ahead, which is the smallest of the UK bus and rail operators, could be attractive to non-UK players seeking a foothold in this market. The broker also added National Express, down 5.4p at 229p, to its list, stoking hopes of another tilt from Stagecoach, down 1.7p at 183.2p, which attempted a deal last year. Deutsche Bahn, which recently made an approach to sector peer Arriva, is another possible suitor, as is France's SNCF, UBS said. At the close, Arriva was 0.5p behind at 733p.

Beyond the transport sector, the broker saw the possibility of deal activity around TalkTalk, which, until a recent demerger, was Carphone Warehouse's broadband arm. "We believe TalkTalk's high market share of UK broadband could be of interest to either UK mobile operators or Sky. Following the Tiscali acquisition [it] now has 23 per cent of UK broadband, comparable to the incumbent and market leader BT with 27 per cent," the broker said as TalkTalk, caught in the downdraft unsettling the wider market, dipped by 5p to 129p.

Further afield, the fund firm Gartmore, which fell by more than 30 per cent after suspending a top fund manager in relation to breaches of internal procedures on Tuesday, mounted a comeback, gaining almost 8 per cent or 9p to 125p, with Oriel Securities saying that the sell-off had been overdone. The broker played down fears that Guillaume Rambourg's suspension would have a dramatic impact on Gartmore's business as pessimistic, pointing to the fact that the firm's best-known manager, Roger Guy, remains in place. Later in the session, Gartmore's chief executive, Jeff Meyer, said there had been "no material redemptions" since the suspension.

Speculators once again focused on Collins Stewart, with the stockbroker firming up by 2p to 88p amid bid talk. The rumours remained thin on detail, though Brewin Dolphin, up 0.1p at 145.2p, was mooted as a possible merger partner in some quarters. Chatter regarding interest from the sector peer Evolution, up 2.5p at 126.75p, was played down.

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