Market update - 28 August

The FTSE 100 was up 13.9 points at 5542 and the FTSE 250 was up 58.3 points at 9195.4p at 11.48am today. The banking sector rallied on the FTSE 100, cheered by results from Credit Agricole, which were not as bad as expected. As result, HBOS gained 13.75p to 307p, claiming second place on the leader board.

Bradford & Bingley was also firm, gaining .05p to 50p on the FTSE 250, ahead of its interim results, which are due tomorrow. Collins Stewart weighed in ahead of the results in a new note published this morning, advising investors to “sell” the stock.

“B&B is being implicitly backed by the major UK banks and the government, in our opinion but this remains a volatile situation and we can see far better returns in larger, more liquid stocks, such as HBOS,” the broker said.

Moving up

Societe Generale aided Barclays, which was up 2.8 per cent or 9.25p at 339.5p this morning after the broker chose the stock as one its key recovery picks in the UK banking sector.

“Given the challenges facing the banking sector following the credit crisis coupled with a domestic economy on the edge of recession, we are of the opinion that the UK banking sector is facing a long road to recovery. As a result, we expect share prices to remain depressed over the medium term. We believe that long term interest in UK banks will only start to emerge when there is evidence of a stabilising environment in US and in particular US house prices. In addition, we believe that investors will only start to regain confidence in the future profitability of UK banks further down the economic cycle,” the broker said, adding:

“Against this backdrop, we are looking to identify a relative shelter from the storm. We believe Barclays is the best placed amongst our UK banking universe with its relatively defensive UK banking profile, its international diversification and its investment banking franchise which Barclays has moved to strengthen in light of difficulties facing its peers.”

RSA Insurance, at first place on the FTSE 100, gained 4.8 per cent or 7p to 152.8p on renewed bid talk. The company has been mooted as a possible target for a larger European rival and Zurich Financial Services has been pegged as the most likely suitor.

BT was also strong, gaining 5.2p to 170.5p, after Goldman Sachs added the stock to its “buy” list.

“…we believe that substantial downside risks are priced into the stock and that there is significant potential upside if management is able to execute through its difficult patch successfully,” the broker said, adding:

“More solid reassurance about the security of consensus dividend estimates and pension funding will have a compounding effect in our view, given the risk discount that we now see in the stock. This is the first time we have rated BT Buy since October 2000.”

Also on the upside, engineering group Bodycote gained 6.9 per cent or 14.5p to 224.5p after announcing the long-anticipated sale of its testing business.

The company said it had agreed to sell the division to Clayton, Dubilier and Rice, the American private equity firm, for £417m. Following the sale, Bodycote intends t o return £260m or 80p per share to shareholders.

Moving down

Vodafone was weak, down 1.6p at 139.95p, after Societe Generale reduced its target price for the stock to 120p from 135p.

Imperial Energy eased back to 14p at 1180p after market rumours suggested that Sinopec, the Chinese group which was pegged to counter ONGC Videsh’s offer for the Russia-focused oil & gas group, had pulled out of the race to acquire the company. Earlier this week, Imperial announced a recommended 1250p per share offer from the Indian group.