Whitbread rose yesterday as the FTSE 100 swung to its highest level since September 2008, with traders piling in on hopes that the hospitality and leisure group would remain resilient even as the broader sector faced another year of soft revenues.
Results from a Morgan Stanley corporate travel survey suggested that hotel operators are likely to see another year of weak hotel prices in 2010, with revenues per available room (revpar) forecast to fall by 4 per cent in the US and 2 per cent in Europe. Moreover, freebies such as internet access and breakfast are likely to put margins under pressure. Looking ahead, the broker said the industry was moving towards a recovery, but "with occupancy six points below its long term average ... it will take three to four years of economic growth for hotels to recover pricing power".
Whitbread, which owns the Premier Inn budget hotel chain, may buck the trend, however. The group's revpar in the UK has proved to be among the most resilient in the world, Morgan Stanley said, highlighting the fact that "its average hotel rates have barely moved", meaning that unlike its peers "it does not need price increases to get back to peak revpar". It is also cheap, as the "valuation is the lowest of all the hotels on peak, trough and 2010 earnings", the broker added. Its remarks helped Whitbread to rise 14p to 1318p.
Overall, the heavily weighted mining sector supported the FTSE 100, which touched a session high of 5,396.96 before closing at 5,382.67 – up 1.6 per or 86.29 points on the day. The benchmark is now within striking distance of levels last seen before Lehman Brothers went bankrupt on 15 September 2008; it closed at 5,416.7 on 12 September 2008. The mid-cap FTSE 250 index was also strong last night, gaining 1.6 per cent or 149.53 points to close at 9,523.27.
Lonmin, the platinum producer which issued final results yesterday, was the strongest of the blue chips, rising by more than 9 per cent, or 148p, to 1740p, while Xstrata rallied to 1093p, up 7.8 per cent, or 79p. Lonmin was supported by a well-received medium-term outlook, while Xstrata was powered by the price of copper, which rose thanks to the renewed weakness of the US dollar. The Eurasian Natural Resources Corporation rose by 23.5p to 906.5p. News from Japan, where official figures showed a larger-than-expected expansion in third-quarter gross domestic product, also boosted sentiment across the sector.
Similar factors were at play in the oil and gas industry, with stocks such as BG, up 26.5p at 1132p, BP, up 7.2p at 588.3p, and Royal Dutch Shell, up 26.5p at 1883p, gaining ground as oil prices rose on the back of the weak dollar. Explorers and producers also traded higher, with Cairn Energy climbing 52p to 2922p and Tullow Oil advancing 30p to 1270p.
Elsewhere, Aviva closed 4.6p higher to 409.7p after Morgan Stanley upped the stock to "overweight", with a target price raised from 446p to 593p. It said recent changes such as Aviva's successful estate attribution and overhaul of the UK general insurance business were "beginning to pay off". "While some of this has yet to feed through into the numbers, we believe other aspects have been masked from investors by the volatility of markets," the broker added, abandoning its "equal weight" stance.
In the housing sector, the mood was buoyant after Persimmon issued a positive interim management statement, sending its shares up 6.2 per cent, or 28.5p, to 488.6p. Its chief executive Mike Farley said "buyers are back", raising hopes across the sector. The cheer drove Barratt Developments up 4.1 per cent, or 5.8p, to 146p and Bellway up 5.4 per cent, or 42p, to 822p. Bovis Homes was also strong, gaining 15.2p to close at 456p.
Numis offered hopes to investors in Punch Taverns, the pubs group which gained 1.85p to 92.3p after the broker said a recent sales presentation had left it with the impression that while trading conditions remained tough, there were signs of improvement. "This and a strong disposal programme should bring an improvement in like-for-like profits in the new year," the broker said. "Over the medium term, the shares could significantly outperform if [underlying earnings] stabilises and inflation returns."
On the downside, the inter-dealer broker Tullett Prebon continued to trade lower, retreating 4.4 per cent, or 15.2p, to 334.3p as analysts weighed in on last week's interim management statement. Numis reduced its target price for the stock from 476p to 447p, citing the disclosure of the extent of staff losses to BGC, while Panmure Gordon scaled back its target to 400p, from 440p previously.
"We are concerned about capacity gaps left by recent broker departures," Panmure said, maintaining a "hold" stance on the stock.
Further afield, the window film specialist Pentagon Protection saw its shares jump 25 per cent, or 0.12p, to 0.58p after confirming a bid approach from the security group Westminster. Pentagon said the approach, made last week, was pitched at a level below where its shares were trading at the time, and "substantially undervalued" the company. Westminster ended 0.5p lower at 33p last night.