Market update - 7 November

The FTSE 100 was up 67.15 points at 4339.56 and the FTSE 250 climbed to 6623.54, up 102.52 points, at 11.57am today.

British Airways was the strongest on the senior index, up more than 15 per cent or 19.8p at 150.3p after posting a better than expected interim report. In response, Cazenove said that while the group continues to face “considerable cyclical risks in the short term”, its current valuation was “compelling enough for funds to start to build weightings in anticipation of the recovery when it comes”.

Panmure Gordon was more cautious, maintaining its “hold” rating and opining that, given the weakening economic conditions and the uncertainty surrounding the pension deficit, a re-rating of the shares was “unlikely”. Collins Stewart, on the other hand, reiterated the point about valuation.

“The trading outlook for airlines is deteriorating; we have only seen two months of long premium traffic weakness. However, BA’s strategy appears to be working as it manages yields up to a level that is sustainable against higher long-term oil prices,” the broker said, adding:

“Given all the uncertainties, BA shares have traded down to an unprecedented discount to net asset value… We expect this gap to narrow. Meanwhile, management is working on other self-help measures, including [the] Iberia merger and the American Airlines tie-up.”

Moving up

The mining sector rebounded as investors returned to capitalise on recent weakness, sending Eurasian Natural Resources Corporation to 305p, up 15.25p, and Lonmin to 1120p, up 41p.

On the second tier, Imperial Energy climbed to 1080p, up more than 22 per cent or 197p, after Russia’s anti-trust office cleared ONGC’s takeover of the company.

Among smaller companies, JJB Sports was in focus, rising to 40.25p, up 14.18 per cent or 5p, amid talk of a possible bid from Pentland, which owns 57 per cent of rival JD Sports, for its fashion division.

Moving down

Large cap property groups remained on the back foot as investors digested Morgan Stanley’s prediction of a further 42 per cent fall in sector share prices. Liberty International was the weakest, down 22p at 670.5p, while Land Securities fell to 1101p, down 31p, and Hammerson lost 18p to 697p.

Mid-cap peer Great Portland Estates was down 11.5p at 271.75p after UBS switched its stance on the stock to “neutral” from “buy”.

“In the last week the share price has recovered around 15 per cent from its recent lows. This reflects the general market recovery and the prospects for reassurance from next week’s update. However, we believe that property recovery prospects remain distant…,” the broker said, adding:

“Great Portland has built up a track record as a specialist West End investor and developer. It has proven management and has scaled back its development activities... However, we expect West End rents and values to fall and have assumed low point equivalent yields of over 7 per cent.”

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