Market Report: Upbeat Rio digs the miners out of a hole

 

The City forgot its fears about a major slowdown for Asia’s powerhouse when the miner Rio Tinto revealed its optimistic growth outlook yesterday.Miners slumped recently on the prospects of a slowdown in China but Rio’s update that iron ore shipments were ahead 1 per cent compared with the same period last year and 7 per cent against the first three months of the year helped it to take a spot near the top of the benchmark index.

Its positive outlook for China helped to lift the rest of the metal sector even without a rise in mineral prices.

Alex Young, senior sales trader at the spread-betting group CMC Markets UK, said: “The mining sector has outperformed as a whole, after Rio Tinto confirmed they will follow through on plans to increase iron ore production by a minimum of 10 per cent, banking on a boost to Chinese orders despite wider concerns over the region’s growth outlook.”

The Mexican precious metal miner Fresnillo built up a 57.5p gain to 1,016p while Rio rose 76.5p to 2,883p.

Randgold Resources jumped 207p, or 4.8 per cent, as the fund BlackRock Investment Management upped its stake to 15.3 per cent.

Across the wider market, there was little to get traders excited. David Jones, chief market strategist at the spread-betting group IG, said: “Subdued trade was the order of the day, which, in spite of lower-than-expected UK inflation data and dovish comments from the Bank of England’s Paul Fisher, has seen the FTSE 100 index trade within a 20-point range, lacking both direction and momentum.”

The FTSE 100 finished the day down 29.76 points at 6,556.35.

The bank Standard Chartered was one of the biggest fallers, with traders putting the decline down to profit-taking as the stock had added more than 5 per cent so far this month.

The long-awaited scorching summer has been a boon to most retailers, and the share price of DIY specialist Kingfisher has benefited on the assumption that barbecue sales and garden accessories have been flying off the shelves.

Kingfisher, which owns B&Q in the UK as well as chains including Castorama and Brico Dépôt in Europe, will issue its second-quarter update next week.

Kingfisher’s shares have already risen 28 per cent in the past three months. An improved housing market – which means shoppers spend money on doing up their homes – and signs that Kingfisher will start a share buyback programme this year were both cited as reasons behind the jump.

However, although a raft of analysts upped their price targets yesterday, all said the rise had gone far enough. Nomura did upgrade its sell rating, but only to neutral, and Deutsche Bank kept its neutral recommendation, pointing out that although the UK picture has improved, the French “macro environment remains a key risk” for the group.

But punters were not listening to the analysts’ warnings, and pushed the retailer, which also owns the Screwfix chain, up 4.7p to 383.7p.

The mid-tier health specialist BTG said at its first-quarter update yesterday that it has been trading in line with expectations, and the shares edged up 0.4 p to 395.1p.

Brokers obsessed with the sunshine took a look at the soft drinks maker Britvic. Nomura said that now that the merger with Irn-Bru maker AG Barr is off, there could still be “further upside potential” if the sun continues to shine. It rated the shares a buy with a 580p price target. The owner of Robinsons fruit drinks and Tango, which launched its latest ad campaign last month, will produce its third-quarter update next week. Nomura pointed to “franchise opportunity” as an area of growth. But for now Britvic was unmoved at 510p.

The Aim-listed fashion group Asos stumbled 68p to 4,412p on news that the former head of fashion at Marks & Spencer, Kate Bostock, has left her post as executive director, product and trading, after just seven months.

Sirius Minerals lost 4.25p to 23.25p on fears ahead of a North York Moors National Park Authority planning decision, due later this week, for its mine in the Yorkshire beauty spot.

The Middle Eastern oil explorer Circle Oil jetted up 0.375p to 18.95p as traders expected news of a drilling result from the Aim tiddler. Liberum Capital said some stocks “appear to have been hit too hard” in the oil sector, and rated Circle a buy.

Buy

Unilever

Snap up shares in Unilever, Shore Capital advises. The broker thinks the consumer goods giant’s first-half results next week will reveal positive progress on improved margins. Shore admits there is “potential pressure on short-term earnings” but says its emerging-market exposure and strong balance sheet make it still worth a buy at 2,806p for shares that are at 2,802p.

Sell

Premier Oil

Flog shares in Premier Oil, Liberum Capital suggests. The broker is worried about its costs and although it sold a non-core block in Vietnam yesterday, its analysts “remain concerned about the cost of adding new reserves”. The analysts think Premier should reduce finding  and development costs, and they rate it a sell with a 313p price  target for shares that are currently  at 357.8p.

Hold

Dairy Crest

Hang on to cheese maker Dairy Crest, Panmure Gordon advises. The broker thinks the milk-to-spreads business reported a “slightly disappointing start to the full year 2014 financial year” although it was still in line with management expectations. But Panmure thinks that because the shares have risen by 29 per cent so far this year, they look “fair value” so it rates them a hold with a 500p price target for shares that are currently at 490.2p.

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