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Market Report: Insurers boost top tier despite news from Japan

Toby Green
Friday 18 March 2011 01:00 GMT
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The top-tier index was covered in blue last night as it finally managed to bring to an end a run of six straight sessions of falls. The challenge for investors, however, was to separate the stocks that were over-sold after the tragedy in Japan from those merely experiencing a dead cat bounce.

Events in the country have played their part in the FTSE 100 losing over 6 per cent in that period, but yesterday it managed a surge of 97.88 points to close at 5,696.11. The insurance groups were some of those looking notably stronger, including Aviva which increased 15.8p to 437p.

The sector found support from Shore Capital, with its analyst Eamonn Flanagan saying that "at this early stage, we remain unconvinced that the losses from the Sendai quake will be sufficient in themselves to represent a 'market-changing' event" for the worldwide insurance market.

He expressed his surprise at RSA Insurance's weakness "given its lack of exposures" as it added 1.5p to 129.9p, and also said Beazley - 2.7p ahead at 120.7p - was one of the groups oversold.

There were words of encouragement as well from Morgan Stanley, and its analyst Maciej Wasilewicz said he believed "the market is implying a worst-case scenario level of large losses for [the] European reinsurers".

Claiming the set-up of the Japanese market – where "foreign reinsurers tend to have little or no nuclear or residential exposure, due to regulation and industry practice" – meant the sector's losses would be limited, he was especially positive on Lancashire and Amlin, which went on to jump up 36p to 568.5p and 13.3p to 398.6p respectively.

Also moving ahead were the mining stocks, including BHP Billiton which was driven up 67.5p to 2,281p. The world's largest miner was chosen by Barclays Capital as one of the "high- quality European stocks" it sees as having been hit by investors' cutting their risk, despite Japan contributing only 10 per cent of the group's revenue.

The broker picked out Whitbread as well, pointing out it "has no direct or indirect exposure to Japan unless this has a knock-on effect to the UK economy", and the Premier Inn and Costa Coffee-owner was boosted up 40p to 1,621p.

Another name highlighted was International Consolidated Airlines, and it shifted forwards 5.5p to 218.4p despite a sharp advance in the price of oil as the ongoing unrest in the Middle East and North Africa continued to worry.

Also looking good was Burberry, with the upmarket clothing retailer rising 14p to 1,108.p after losing nearly 9 per cent of its share price in the previous five sessions. H2O Market's Daniel Harris said the luxury sector had moved disproportionately lower given the fact "Japan represents 11 per cent of global luxury sales and most of the luxury groups have exposure to emerging nations, particularly China."

Yet this was enough for Deutsche Bank to downgrade its annual growth forecasts for the sector to just 2 per cent from 9 per cent, although it reduced its earnings estimates for Burberry by only 5 per cent, saying its profit from Japan "comes through license royalties which are subject to contractual minimums".

Just six groups on the blue-chip index missed out on the rally, including Legal & General which announced its final results. The insurer raised its dividend by nearly 25 per cent, yet still edged back 0.4p to 110.7p as profit-taking after a strong start to 2011 was blamed for its weakness.

On the FTSE 250, Aegis was also updating the market, and the advertising group's optimism for the year ahead and its forecast-beating revenue figures for 2010 saw it driven up 8.2p to 138.6p. There was an even bigger gain for SIG, however, which advanced 9.4p to 130.5p after the insulation compay posted a rise in its underlying annual profits of 3 per cent.

Still, it was not enough to take the mid-tier index's top spot, which went instead to Heritage Oil. The oil and gas explorer has seen a re-emergence of takeover speculation around it in recent weeks, and yesterday reports emerged that it had received – and rejected – a 425p-a-share informal bid; the news lifted it 23.8p to 313.5p.

Betfair faced some harsh words from Espirito Santo which initiated coverage on the betting exchange with a "sell" recommendation. "We do not believe that Betfair's superior technology platform on its own is enough to justify its premium rating in the sector," said the broker. Yet clearly investors were feeling more positive – perhaps because it is Cheltenham week – and the gambling group shrugged off the criticism to climb 23p to 877.5p.

There was, finally, some good news for investors in HMV as the high street chain closed 3.75p ahead at 15.25 after bullish comments from its chief executive. Claiming he was "very confident [its staff] have a long term future", Simon Fox said discussions being held with its consortium of banks have been "very positive".

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