The London market surged last night, but Shire was left behind after UBS switched its stance on the pharmaceutical group's stock on grounds of valuation.
The broker scaled back its rating for the stock from "buy" to "neutral", saying the 1,160p target thrown up by its discounted cash flow-based valuation model left little upside. Moreover, the next catalyst for the share price – the group's third-quarter results at the end of this month – "may offer limited excitement".
Specifically, average pricing for Adderall XR, Shire's key drug therapy for attention deficit disorder, may have slipped since the second quarter, UBS explained. The assessment undermined sentiment around the stock, which fell by 18p to 1,053p despite strength in the wider market.
Overall, the heavily weighted mining and oil issues drove the FTSE 100 to 5,137.98, up 2.3 per cent or 113.65 points. The mid-cap FTSE 250 was also buoyant, climbing to 9,201.23, up 2.4 per cent or 218.7 points.
Commodities were driven up by weakness in the US dollar, which was hit amid concern, prompted by a report in The Independent, about moves to replace the greenback with a basket of currencies in the trading of oil. A falling dollar makes commodities such as gold, oil and copper, all of which are priced in dollars, cheaper for non-US investors.
The copper producers Kazakhmys, up 91p at 1,093p, and Antofagasta, up 44.5p at 791p, were among the strongest in the mining sector, while Tullow Oil, up 94p at 1,209p, led the oil industry higher. The gold producer Randgold Resources jumped 337p to 4,531p as gold prices touched a record high. Fresnillo, the Mexican silver miner, was the strongest of the blue chips, rising 74.5p to 824.5p.
Elsewhere, strategists at Bank of America-Merrill Lynch gave a boost to the banking sector, moving European banks to "overweight" thanks to a "healthy" financial backdrop.
"Buoyant trading revenues, steep yield curves, stabilising provisioning trends and rebuilt capital bases (for now) offer attractive source material for bank profitability," they said. "Against this backdrop we see legitimate concerns on regulatory capital and liquidity requirements being pushed into next year."
Standard Chartered, whose target price was raised from 1,185p to 1,600p by Credit Suisse, was the standout riser here, gaining 59p to close at 1,551p. Royal Bank of Scotland rose by 1.29p to 49.85p, while Lloyds, which was one of 10 stocks hailed by HSBC as its best equity ideas in Europe, rose by 1.54p to end the day on 96.5p. Citigroup, meanwhile, gave a leg-up to Rolls–Royce, the engineering group, which rose 19.8p to 475.3p after the broker revised its recommendation from "hold" to "buy", citing a more positive view of the group's position in the civil aerospace market, among other factors.
"While we believe that aircraft deliveries are likely to fall in 2010 and 2011, we expect profits in [Rolls–Royce's] civil aerospace business to be much more resilient in this downturn than previously on account of its significantly higher exposure to more resilient (and higher margin) aftermarket services plus a foreign exchange tailwind from 2009," Citi said. It raised its target price for the shares from 465p to 550p.
On the downside, Legal & General fell 1.1p to to 84.35p as traders banked their gains from last week. The fall overshadowed rumours of bids for the financial services group which, though less frequent than before, were still in evidence. The profit-taking trend also offset the impact of some supportive comments from HSBC, which included Legal & General in a list of its best equity ideas in Europe.
"We expect the shares to continue to recover as investor risk appetite returns, financial markets improve, the solvency buffer continues to rise and management action to improve cash flows starts to come through in reported numbers," HSBC said, highlighting the upside implied by is 125p target price.
Further afield, Dimension Data rose by more than 7 per cent, or 4.65p, to 70p after Altium Securities weighed in, upping its recommendation from "hold" to "buy". "We believe that a combination of factors, including ongoing robust demand for network solutions, market share gains against other Cisco services partners and currency tailwinds will give rise to upgrades and consensus estimates for 2009 and beyond," the broker said, revising its target price for Dimension from 55p to 75p.
The oil services group Wellstream rose 19p to 579p thanks to strength in the price of oil, which overshadowed some negative remarks from Morgan Stanley. Initiating coverage with an "underweight" stance, the broker said that in light of the company's small size and high operating leverage, it saw better opportunities elsewhere.
"We initiate at underweight, given our bottom-up analysis of the flexible pipe market that indicates supply growth will likely outstrip demand recovery in 2010 and 2011, and therefore earnings upgrades are likely to lag peers," the broker said, setting a 610p target price for the stock.