Market Report: Talk of &pound;1bn share buy-back drives up mmO<SUB>2</SUB>

Hopes that mmO ₂ will soon unveil a return of cash to shareholders sent investors piling into the mobile phone group and drove its stock 1.5p higher to 101.5p. It was Morgan Stanley who stirred up the interest in mmO ₂ yesterday as the broker hinted that next month could well see the group's management team announce a share buy-back programme of up to £1bn.

Hopes that mmO ₂ will soon unveil a return of cash to shareholders sent investors piling into the mobile phone group and drove its stock 1.5p higher to 101.5p. It was Morgan Stanley who stirred up the interest in mmO ₂ yesterday as the broker hinted that next month could well see the group's management team announce a share buy-back programme of up to £1bn.

Morgan Stanley is convinced that mmO ₂ has the cash to execute such a move thanks to a robust financial performance in recent years. The US broker also expects mmO ₂ to boast that it will pay its maiden dividend, of about 3p a share, during the year to March 2006. In Morgan Stanley's words: "We believe there is scope for a one-time payout in addition to the introduction of an ongoing dividend."

Upgrades to forecasts for mmO ₂'s German unit should also not be discounted, the broker says. Mobile phone penetration in that part of the Europe remains some way below the average for the Continent, so there is still plenty of growth to be enjoyed in the German market. The fact that it is one of Europe's less competitive is yet another plus for the company.

MmO ₂ finished the day as one of the best performers in the blue-chip index thanks to Morgan Stanley's bullish comments. But the US broker was also responsible for one of the worst performers. HBOS fell 11.5p to 748.5p after it downgraded the banking giant to "equal weight" from "overweight".

"The housing market has slowed sharply in the past two months, but at the same time re-mortgage activity has remained robust. We see this as a negative combination for HBOS and believe the group will increasingly struggle to hit market share targets," Morgan Stanley said as justification for its downgrade.

Elsewhere, Cazenove slashed its forecasts for European airlines to take account of the strong oil price. The broker downgraded its 2005 earnings estimate for British Airways by 13 per cent and for Ryanair by 7 per cent. BA fell 5.5p to 200.5p and Ryanair was off €0.03 to €3.70. However, Cazenove warned investors against becoming excessively bearish on the sector, predicting that airline stocks would enjoy a strong recovery once the price of crude starts to retreat in a meaningful way. Until then, the sector is best avoided, says the broker.

Shares in the car rentals giant Avis Europe rallied from all-time lows, gaining 2.5p to 69.25p. Premier Oil dropped 20.5p to 602p as its finance director, John Van Der Welle, cashed in on his holding. He sold 277,000 share options and 31,000 shares at 619p. Premier Oil stock has risen by 70 per cent over the past 12 months.

Corus, off 0.5p to 49p, disclosed that Brandes Investment Partners had become its biggest shareholder. The US fund manger now controls 15.8 per cent of the company, ahead of the Russian businessman Alisher Usmanov who holdings 13.4 per cent. Recent stock market rumours have suggested that Mr Usmanov is keen to reduce his stake.

Although there has been no official evidence to indicate that the Russian has sold any of his holding, market professionals note that he could have reduced his exposure to the Anglo-Dutch group via a derivative, such as a contract for difference. Such an arrangement does not have to be disclosed to the Stock Exchange.

Meanwhile, Evolution Securities sent Imagination Technologies 5.5p lower to 74p as the broker argued that shares in the chip designer are "worth considerably less than the current price". Evolution suggested that the group's Pure business is performing poorly and set a price target of just 55p.

Something of a buzz surrounded Monterrico Metals, 14.5p higher at 584.5p. Earlier this year the mining group put itself up for sale and charged HSBC with finding a buyer. Gossips reckon the investment bank has narrowed the hunt down to two interested players who may be willing to pay over 700p for Monterrico. That would certainly be a great result for a stock that traded below 50p a share at the start of 2003.

BioProgress lost 0.25p to 125p after Graham Hind, the chief executive, halved his holding in the group via the sale of 300,000 shares at 125p. Mr Hind stressed that these are the first shares he has sold and indicated that he had no further plans to sell shares in the foreseeable future. Edinburgh Oil & Gas ticked 1p better to 181p on talk that the Buzzard oil field, where the explorer has a 5 per cent stake, is performing ahead of budget.

Angus & Ross, steady at 10.75p, raised £2.2m via a placing of new stock at 10p. The group said it would use the cash to develop its mining projects in Brazil, Greenland, China and Australia.

Market movers

↑ AstraZeneca 2,137p (up 34p, 1.6 per cent). Indicates that its cholesterol drug Crestor is a step closer to approval in Japan.

↑ BOC 883p (up 13p, 1.5 per cent). Reports that the group is considering a merger with German peer Linde excite investors.

↑ GUS 898.5p (up 12p, 1.4 per cent). Dresdner Kleinwort Wasserstein reiterates its "buy" rating and sets a price target of 965p.

↑ Findel 420p (up 11.5p, 2.8 per cent). Unveils a strong trading statement.

↑ Stanley Leisure 428p (up 9p, 2.2 per cent). Announces plans to build a regional casino next to the Leeds United football stadium.

↑ Spectris 418.75p (up 7.75p, 1.9 per cent). Tony Reading, a non-executive director, buys 6,500 shares at 412p.

↑ Aricom 29.5p (up 6.5p, 28.3 per cent). Says it is exploring a number of opportunities to develop its titanium dioxide business.

↑ Workplace Systems 15p (up 1.5p, 11.1 per cent). Unveils two software contracts.

↑ Dawson International 8p (up 0.75p, 10.3 per cent). Secures refinancing deal for its UK unit.

↑ Applied Optical Technologies 23.5p (up 2p, 9.3 per cent). Sells property in Leicester for £3.75m.

↑ UA Group 1,125p (up 90p, 8.7 per cent). Investors await takeover developments.

↑ Oystertec 25p (up 2p, 8.7 per cent). Says it is confident of victory in its legal dispute with Paul Davidson, the company's founder.

↓ Reuters 323p (down 7.25p, 2.2 per cent). Nervousness ahead of third quarter results from the financial information specialist today.

↓ Vtech Holdings 80.5p (down 26p, 24.4 per cent). Warns that profits for the first half of its year will be substantially lower than expected.

↓ RingProp 282.5p (down 57.5p, 16.9 per cent). Don Hoult steps down as chief executive.

↓ Scottish Power 431p (down 2.25p, 0.5 per cent). Citigroup downgrades to "sell" from "hold".