Commercial property came under pressure last night, with Hammerson trading lower amid worries that values may ease again next year.
The concerns were stoked by a new survey which showed that property experts foresee a 0.6 per cent decline in prices in 2011, compared to previous predictions of a 2.2 per cent rise. They were more hopeful about the current year, with capital values seen rising by 5.9 per cent, compared to 2.4 per cent previously, according to the Investment Property Forum (IPF).
"The first-quarter 2010 IPF UK consensus forecasts reveal a more optimistic outlook for the market over the next three to five years, albeit with a distinct dip in performance anticipated in 2011," the IPF said.
The news dampened the mood around the likes of British Land, which ended 4.6p behind at 440p, and Land Securities, which lost 0.5p to 632.5p. Liberty International managed to edge up, closing 1.2p higher at 472.7p, but Hammerson fell to 383p, down 3.3p, despite strength in the wider market. The latter was also the subject of some comment from Goldman Sachs, which, weighing in on the back of the company's full-year results last week, repeated its "neutral" stance.
"We believe Hammerson's existing portfolio will continue to produce robust earnings trends given the quality of the assets," the broker said, moving its target for the stock to 425p. "However, with 88 per cent of the portfolio in retail assets, we believe it is likely to lack the tailwinds we expect from prime offices. In our view, both the supply and demand dynamics are weaker for retail property occupier markets, especially in the UK."
Overall, sentiment strengthened following upward revisions to UK and US fourth-quarter GDP figures, with the FTSE 100 gaining 76.3 points to 5354.52 and the FTSE 250 rising to 9344.39, up 117.45 points.
The updates lured the bulls back into the heavily weighted commodity issues, with Anglo American gaining 83.5p to 2390p, Rio Tinto rising by 113.5p to 3364p, and Antofagasta climbing to 883.5p, up 22.5p. Xstrata, which was amongst the weakest on Thursday, was 30p stronger at 1030p last night.
Insurance issues also rose, with Aviva gaining 17.3p to 390.3p after ING reiterated its "buy" view, albeit with a revised 488p target price, compared to 523p previously. Weighing in ahead of Aviva's full-year numbers, the broker said it expected the dividend to be cut to 22.7p. In the wider sector, Old Mutual was up 4.1p at 113.4p, while Standard Life and Legal & General added 6.5p to 195.4p and 2.35p to 77.15p respectively.
A new Royal Bank of Scotland circular was in focus in the water sector, with Severn Trent rising to 1165p, up 23p, and Northumbrian Water gaining 4.7p to 275.7p after the broker said "buy". RBS also adopted a "buy" stance on United Utilities, which was 10.5p ahead at 543.5p. "We conclude that the sector looks cheap – we estimate that United and Severn Trent are trading below RAB [regulatory asset base] – while dividend policies are clear and further M&A [mergers & acquisitions activity] is possible," the broker said.
Pennon, which is rated "hold" at RBS, was also strong and gained 9p to 524.5p. "Ofwat [the water market regulator] recently gave Pennon a good price review," the broker said, initiating coverage with a 570p target price. "Proportionately, the company has the lowest capital expenditure programme of the quoted water companies and should be cash positive before acquisitions. Its dividend policy is progressive with more detail to be provided at full-year results."
BAE Systems added 4.3p to 374.3p after Citigroup upped its target for the stock to 425p from 410p. Barclays Capital also weighed in, raising its target to 400p while maintaining an "equal weight" rating on the back of the defence group's full-year numbers last week. Citi, on the other hand, reiterated its positive stance, arguing that worries about the pension deficit had been "overdone" and noting that recent agreements with the UK's Serious Fraud Office and the US Department of Justice had removed the "litigation overhang" from the shares, thereby "resolving a long-standing investor concern".
Elsewhere, the IT group Misys gained 13p to 227.8p after Morgan Stanley raised its target for the stock to 260p. "Our thesis on ... Misys has two reinforcing strands – the first is operational, that banking and healthcare [businesses] should see decent improvement from here, driven by the market, product improvement in banking and regulatory change in US healthcare," the broker said, reiterating its "overweight" stance. "The second is the potential for a break-up of the group to expose the underlying values of each division."
Also on the upside, Chloride, the power protection group, ticked higher, rising to 184.7p, up 3.4p, after Charles Stanley upped its view to "buy", saying: "There is now more than sufficient evidence to support increased forecasts for 2011 and 2012 .... Over the summer the group should have a year's worth of growth under its belt and it would be surprising if this didn't flow through to a greater level of public confidence in the outlook and, in turn, broker forecasts."
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