Market update - 11 March

The FTSE 100 was 15.3 points behind at 3699.9 while the FTSE 250 gained 38 points to 5992.8 at 11:58 am this morning.

Although the overall trend in the banking and insurance sectors remained positive, HSBC, down 5.5 per cent or 22p at 376.7p, missed out as traders questioned whether or not the lender would win enough shareholder support for its rights issue, especially in light of the recent volatility in its stock in both London and Hong Kong. Standard Chartered was also unsettled, losing 2.9 per cent or 23.5p to 786.5p after UBS switched its stance to “neutral” from “buy”.

“New disclosures with the results last week emphasised the short-dated nature of the wholesale loan book... This allows for the significant re-pricing of new business to flow quickly to revenues, in particular as the bank continues to lend. It also means credit migration is a manageable issue, compared with real-estate heavy peers,” the broker said,

“However, recent share price strength leaves the relative valuation somewhat full at more than twice that of the sector.”

Moving up

Redrow was firm at 147.5p, up 1.25p, after Merrill Lynch weighed in on the recent stake building by Steve Morgan, the former boss and founder of the house builder.

Upgrading the stock to “buy”, the broker said: “With his initial long held 17 per cent stake, subsequently boosted by acquiring a 6.5 per cent holding from Toscafund as well as CDS [contracts for difference] giving him a further 6.5 per cent, Steve Morgan’s total 29.9 per cent holding in Redrow now gives him considerable potential leverage.”

“We suspect that having exited from a management role at Redrow in 2000, at a time when Redrow was regarded as a premium stock within its peer group, Steve Morgan perceives the recent share price underperformance as an opportunity to return to the business he founded in 1974. And [market] sentiment clearly believes that Morgan will not be content with simply with board representation but will instead seek a controlling influence on the group… We must stress however that we see the dynamics of what happens at/to Redrow as something of a one-off; we do not see it as marking a return of sector-wide M&A.”

Moving down

British American Tobacco fell to the bottom of the benchmark index, losing 6 per cent or 109p to 1705p after Nomura reduced its target price for the stock to 1495p from 1525p.

Cairn Energy was 4.3 per cent or 81p behind at 1789p after placing 5 per cent of its share capital to raise new funds. Analysts were mostly positive on the move, with Collins Stewart saying that, although dilutive, the placing still leaves the shares with a 60 per cent upside.