Market update - 20 June

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The Independent Online

The FTSE 100 was down 1.6 points at 5706.8 at 11.17am on Friday. The London benchmark was kept in the red by the mining sector, which gave back earlier gains as metals prices eased. The banking sector was also weak as reports emerged that the Sumitomo Mitsui Financial Group, one of Japan’s largest banks, may inject up to £1bn in Barclays, the UK financial group which is reportedly seeking up to £4bn to beef up its balance sheet.

The FTSE 250, however, was firm and gained 12.7 points to 9459.3 after trade publication Building Magazine said that Barratt Developments, the debt-laden house builder, had reached deal with its bankers, who have reportedly agreed to waive a clause that could have the put the company in breach of its financial covenants. The news drove Barratt to pole position on the mid-cap leader board, up 17.57 per cent or 13.75p to 92p.

The remainder of the sector was also cheered by the news – Taylor Wimpey, at second place on the FTSE 250, was up 9.4 per cent or 6.25p at 72.75p, Bellway, at third place, gained 9.24 per cent or 44p to 520p, Bovis Homes, at fourth place, climbed by 8.75 per cent or 30.25p to 376p, and Redrow rose by 7.29 per cent or 11.25p to 165.5p.

Moving up

On the FTSE 100, Persimmon was buoyed by the news around Barratt and claimed first place on the leader board, up 7.26 per cent or 26.5p at 391.5p.

Antofagasta, at second place, overcame the weakness in the wider mining sector to climb by 30p to 665p. The company pleased the market by announcing that it had received environmental approval for its Esperanza copper-gold project in Chile.

Security specialist G4S, at fourth place, rose by 6.5p to 212.75p after Morgan Stanley revised its rating on the stock to "over-weight" from "equal-weight". The broker also increased its target price for the stock to 240p from 225p.

"[We] view recent share price weakness as a good entry point following our recent visit to G4S in the US, which makes us more positive on growth, margins, acquisition strategy and valuation," said Morgan Stanley.

Moving down

Construction materials firm Wolseley was down at the bottom of the benchmark index after Morgan Stanley moved the stock to "under-weight" from "equal-weight". The broker also reduced its target price for Wolseley to 380p from 530p, sending the stock down by 20.5p to 449.75p.

HBOS the weakest among the banks on the FTSE 100, down 6.75p at 290p, following some adverse broker comment.

Deutsche Bank reduced its target price for the stock to 415p from 450p.

"Although we view HBOS as a relatively cheap share, with 70 per cent of group loans to residential and commercial mortgage customers, we see the balance sheet as poorly positioned for weakening markets in the UK, Ireland and Australia," the broker said, adding:

"Arrears are rising across the book, but fastest in the speciality loan portfolio; we expect the mainstream residential mortgage portfolio will continue to deteriorate."

Panmure Gordon also weighed-in, reducing its target price for the stock to 250p from 350p.

"The expectation of significantly higher impairment charges as well as further write-downs drives us to make substantial cuts in our earnings per share forecasts, from 38.1p to 25.2p for 2008, and from 47.5p to 24.1p for 2009," the broker said, adding:

"We also expect that risk-weighted asset growth will significantly outpace balance sheet asset growth for the new few years, as credit quality deterioration and falling asset prices continue to translate into rising risk weights. This will keep pressure on HBOS's capital ratios."

Among the miners, Anglo American was the worst off after Vale reportedly denied it was in talks to buy a rival company. Anglo was mooted as a possible target after earlier reports indicated the South American miner was raising money to fund an acquisition.

On the FTSE 250, Rightmove was down 24p at 296p after Citigroup downgraded the stock to "hold" from "buy". The broker also reduced its target price for Rightmove, to 345p from 550p.

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