Market Report: Serco's defensive quality shines in anxious times

With a rise of 27p to 618.5p, Serco stormed to the top of the blue-chip index last night – and its highest position since last October – after it was picked as a good bet for those looking for respite from the turmoil in the Middle East and North Africa.

The outsourcer received the boost from Bank of America Merrill Lynch, which upgraded its recommendation to "buy" in a note bullish on the group's potential.

"As a growth defensive, Serco should be more attractive to investors who are cautious regarding the economic outlook and instability in Africa and the Middle East," said the broker's analysts, who pointed out that the company's shares have "underperformed the sector by 19 per cent and [its peer] Capita by 9 per cent" over the past six months.

Giving it a target price of 670p, they estimated that the group's growth will increase from 4 per cent in the first half of 2011 to 6 per cent in the second six months, before then going on to reach 9 per cent in 2012. One of the reasons for their positivity, the analysts said, was the number of major contracts set to be awarded in the upcoming months, including one from the Department for Work and Pensions' which they believe "could add more than £100m".

Serco released its final results – in which it revealed a rise of over 20 per cent in its pre-tax profit – last Wednesday, and yesterday's uptick means its share price has increased by over 11 per cent since then. It is now back trading at around the level it was before it took a severe knock last autumn when it was revealed the group had asked suppliers to pay a "rebate" so it could meet savings targets following the Government's spending cuts.

Overall, the FTSE 100 was 14.7 points weaker by the bell at 5,990.39, even though it was in positive territory for most of the day, with further conflict in Libya and an increase in the price of oil resulting in profit-taking towards the end of the session.

On the FTSE 250, market gossips were discussing a couple of old favourites, as vague speculation – played down by traders – again linked Home Retail to a potential bid from Walmart. With a price being talked about of 300p a share, the Argos owner was lifted 3.7p to 211.8p despite Arden Partners downgrading its rating to "sell" and Royal Bank of Scotland reducing its target price ahead of the company's trading statement next week.

Another tale seeing a return was the idea that Forth Ports could be a target for an offer worth between 180p and 200p, as the ports group surged forwards 66p to 1,523p.

Meanwhile, on the top-tier index there were some rather vague mutterings doing the rounds that a blue-chip group could be about to receive a bid. Yet none of the names being speculated about – all of whom have had whispers around them in recent months - saw a big reaction, including Centrica, which crept up 0.7p to 336.7p, and J Sainsbury, 2.8p behind at 368.7p.

The cigarette companies were among the fallers as they were warned that new strict regulations could be announced next week. Imperial Tobacco – down 30p to 1,942p – and British American Tobacco – down 18.5p to 2,483p – were left in the red after Citigroup suggested the Government could release its Tobacco Control Plan to coincide with No Smoking Day on Wednesday, with the broker warning that it "may announce plans for generic packaging".

Also dropping was WPP, despite the advertising and media company's organic revenue rising over 5 per cent for the full year. However, with expectations high – especially considering the strong numbers from some of its international peers – and a relatively cautious outlook statement, it retreated 22p to 814.5p.

The latest Halifax house price survey, which showed a 0.9 per cent fall last month following a 0.8 per cent gain in January, may have disappointed, but it did not stop some of the housebuilders managing to book gains, and Persimmon and Bellway jumped 8.9p to 459.9p and 3p to 668p respectively.

Also higher on the second line was Segro, 7p ahead at 324.7p, despite JP Morgan Cazenove telling investors not to "buy the hype". Even though it is generally positive on the commercial property sector, the broker said the group is not "the best way to play it – there isn't enough cashflow to compensate for weaker capital growth."

Elsewhere Charter International went up 4p to 759p after announcing it had bought the Russian group Sychevsky Electrodny Zavod.

On the Alternative Investment Market, Brulines was left drowning its sorrows, slipping back 16p to 86.5p in the wake of its latest trading update. The data-management company, which specialises in technology for pub landlords that lets them keep an eye on the volume and quality of the pints pulled in their establishments, warned that its full-year profit would come in below its previous expectations.

FTSE 100 Risers

Pearson 1,091p (up 37p, 3.51 per cent)

Large rise for publisher at the end of a week in which it released its 2010 results.

Standard Life 237.4p (up 6.6p, 2.86 per cent)

Insurer boosted by Investec increasing its price target to 262p from 254p.

Capita 786.5p (up 20.5p, 2.68 per cent)

Outsourcer announces acquisition of the software company Talis Information.

FTSE 100 Fallers

International Consolidated Airlines 226.8p (down 6.8p, 2.91 per cent)

Falls despite Liberum Capital upgrading its rating to "hold".

Marks & Spencer 336.3p (down 2.8p, 0.83 per cent)

High street institution retreats after Barclays cuts its target price to 310p.

Wm Morrison 280.9p (down 0.3p, 0.11 per cent)

Edges back as supermarket prepares for next Thursday's preliminary results.

FTSE 250 Risers

Bodycote 325p (up 15.8p, 5.11 per cent)

Engineer is one of the session's biggest risers after Royal Bank of Scotland changes its advice to "buy".

WH Smith 467.5p (up 10p, 2.19 per cent)

Retailer shoots up as UBS increases its rating to "buy" from "neutral".

Ocado 212.5p (up 2p, 0.95 per cent)

Online grocer says its gross sales for the first three months rose by nearly 25 per cent.

FTSE 250 Fallers

SThree 420p (down 9.8p, 2.28 per cent)

Recruiter falls back despite its first-quarter profit rising by nearly 20 per cent.

Partygaming 189p (down 2p, 1.05 per cent)

Drops even though Exane BNP Paribas changes its advice to "neutral" from "underperform".

Spirent Communications 152.1p (down 0.4p, 0.26 per cent)

Tiny retreat as Royal Bank of Scotland, Panmure and Nomura all up its price target.