Market Report: Kingfisher eases as investors bank profits

Kingfisher fell back last night, as Morgan Stanley highlighted the profit-taking opportunity opened up by recent strength in the UK general retail index.

European retailers have lagged behind domestic players, which have been driven up by hopes of an earlier than expected economic recovery; Inditex, the European retail group behind the Zara and Massimo Dutti chains, for example, is trading at its lowest level relative to UK retailers since its stock market debut.

"Relative to M&S, for example, Inditex's valuation premium is now just 15 per cent, compared with 45 per cent historically," Morgan Stanley analysts said. The broker reckons that the recovery hopes which have driven domestic retailers "will prove elusive" over the next 12 months, and in turn recommends that investors move to secure recent gains.

Kingfisher, which fell to 177.3p, down 1.5 per cent or 2.7p, is one of the broker's key sell ideas, as its rallied strongly despite flagging like-for-like sales performance at its B&Q home improvement chain. In the wider sector, Marks & Spencer was 1.2 per cent or 3.5p ahead at 2,87.75p.

Overall, the FTSE 100 was 46.43 points ahead at 4,411.72, while the FTSE 250 eased back to 7,530.02, a fall of 11.45 points. The benchmark turned positive after news of a better than expected reading on a key gauge of US consumer confidence. The Conference Board said its index of consumer attitudes rose to 54.9 in May from a revised 40.8 in April, the biggest one-month rise in the measure since April 2003.

Thomas Cook was the weakest of the blue chips, retreating to 224.75p, down 4.3 per cent, or 10p, after Credit Suisse scaled back its target price for the transport group's stock to 305p from 333p.

Among the banks, Lloyds fell to 66.8p, down 2.6 per cent, or 1.8p, as the waning appetite for risk weighed on the sector. Royal Bank of Scotland was also weak, easing slightly to 40.2p, down 1.7 per cent, or 0.7p.

In the mining sector, news that Rio Tinto, down 16p at 2789.05p, had agreed a substantial reduction in contract iron prices with Japanese steel-makers unsettled sentiment in early trading, but leading stocks pared losses following the release of US consumer confidence data.

As a result, the Eurasian Natural Resources Corporation , which fell to a session low of 559.5p, closed at 613p, up 39p, or 6.8 per cent, while Lonmin, which touched a low of 1,280p, was up 2.1 per cent, or 28p, at 1356p at the end of play.

Elsewhere, Credit Suisse also weighed in on Cable & Wireless, which fell retreated to 134.5p, down almost 2 per cent, or 2.7p, after the broke switched its stance to "underperform" from "neutral", saying the company's results last week had come in below its expectations.

On the upside, Rexam was up 3.4 per cent, or 10.2p, at 312.75p after it was added to the "conviction buy list" at Goldman Sachs, which said it viewed the stock as "significantly undervalued" on both its current forecasts, as well in a mid-cycle scenario.

Supermarket group Morrisons was also firm, rising by 5.5p to 245.5p, as Société Générale predicted news of further gains in market share when the company posts an update in June.

"We still see little reason to believe that the company's recent strong sales growth has slowed, although the strong boost from inflation looks to be easing," the broker said.

"The strength of the balance sheet is another positive factor underpinning our buy case, with net just around £800m this year and freehold property amounting to 95 per cent of the portfolio."

On the second tier, the oil services company Wood Group was 5.9 per cent, or 15.7p, ahead at 283.25p rumours of possible bid interest from Amec, which strengthened by 3.2 per cent, or 20p, to close at 651.5p.

Premier Oil was 2.2 per cent, or 23p, firmer at 1,080p thanks to Goldmans, which moved the stock to "buy" in a sector review. "We believe the stock's valuation is compelling, and that the company is undervalued on the basis of its ore assets and the forward oil price curve," the broker said.

"As such, we believe the potential value of the company's upcoming exploration catalysts is currently free to investors. Furthermore, we believe that Premier's current development programme in Asian and the North Sea is well placed to take advantage of any short term weakness in the cost environment."

Among smaller companies, Formation, which provides management services to high-profile clients in the sports, music and entertainment world such as Ant and Dec and John O'Shea, soared to 9.25p, up 42.3 per cent, or 2.75p, after confirming approach from Gresham Private Equity. The company said the overture related to certain parts of the business, and that it had entered into a period of exclusivity with Gresham.

Anglo Asian Mining, the AIM-listed gold producer, was also strong, rising to 18p, up 16.1 per cent, or 2.5p, after announcing that the president of Azerbaijan had formally opened the company's gold and copper mine, the first operating gold mine in the country.