Market Report: Yell shares worth shouting about, says broker

In the three years since the private equity group Apax Partners brought Yell to the stock market, the shares have performed wonders, more than doubling to close at 608p yesterday, 9p firmer on the session. The US investment bank Merrill Lynch believes the shares have further to go and reiterated its "buy" advice with a price target of 670p.

The broker believes that the case for investing in Yell "remains compelling" and that solid organic growth plus an undemanding valuation mean the shares should continue to outperform. Yell Group has long been linked with private equity bids, and traders said that US directories businesses have been changing hands for significant premiums to Yell's current valuation.

According to traders, Collins Stewart spent most of yesterday pushing Barclays as a short-term "sell" on the back of a strong run that has seen the shares add more than 27 per cent in the last 12 months. The advice appeared to have little impact as Barclays shares climbed another 7p to 751p.

Tate & Lyle is still struggling to find buying support after last week's shock warning that saw the shares lose more than 17 per cent of their value. Brokers have been reluctant to back the company even though rumours of buyout interest are still doing the rounds. Tate & Lyle closed another 12.5p worse at 582.5p, a seven-month low.

Now that Prudential has sold Egg to Citigroup, traders expect to see more corporate activity from the insurance group, including a widely speculated bid, either by Prudential or for it. One trader said: "Now that Egg is off the books, to be replaced by £575m in cash, Prudential looks a better target and is in a better position to do some buying. All round it is a very positive development for shareholders." Resolution, currently involved in takeover talks with an unnamed bidder, added 6.5p to 660.5p, while Prudential shed 4.5p to 698p, having been 25p firmer in early trade.

In the wider market, there was little corporate newsflow to encourage much action. Strength in banking and tobacco stocks offset some weakness in oils as the FTSE 100 closed 11.9 firmer at 6,239.9.

The engineering group FKI topped the FTSE 250 leaderboard with a 5.5p gain to 113.75p, thanks to positive comments from Meryl Witmer, one of New York's best known stock tipsters. She believes the shares deserve to be trading on at least 15 times earnings, implying a share price of 130.5p based on 2007 forecasts.

Broker Panmure Gordon reiterated its "buy" advice on pub and bar operator Mitchells & Butlers after talk that Robert Tchenguiz, the company's largest shareholder with 16 per cent of the stock, is trying to force the group to convert into a Real Estate Investment Trust. Panmure also upped its price target for M&B to 800p, sending the stock 7p firmer to 686.5p.

Interest rate worries hit the mid-market housebuilders, as Bellway led the sector lower with a 33p fall to 1,421p. Bovis Homes was also out of favour, shedding 10p to 1,036p. Perhaps of more interest to investors in the housing sector are results from Kensington Group, the sub-prime mortgage lender, due this morning. The shares have been under intense pressure for the last 12 months and have failed to recover since a profit warning in November. The shares gained 6p to 746p before today's numbers.

In the small caps, Individual Voluntary Arrangement providers took another beating after Debt Free Direct's profit warning after the close of trade on Friday. Although brokers Bridgewell and Numis reiterated "buy" advice on DFD, the shares tanked 148p to 267p. Debtmatters responded by telling investors it expects to hit forecasts but that could not prevent the shares from slumping 66p to 1,633p.

There were mixed fortunes for AIM-listed lottery companies. Weather Lottery hit a new low of 4.5p, 0.5p worse, despite being on target to hit market forecasts for the current year. There is also a rumour that it is poised to sign a deal with a Premier League football club. Chariot, on the other hand, topped the list of small-cap risers, albeit from a very low starting point. The company recently sold the rights to the game and its player database to NetPlayTV and will continue to operate the game for the next month. Shares in Chariot added 0.15p to 0.57p.

Finally, Loudwater Trust had an encouraging start to life as a listed company after raising £75m at 100p per share. Loudwater was the venture capital arm of Panmure Gordon and has taken £7.3m of existing investments with it. The shares closed 12.5p better at 112.5p.