Market Report: Silver price outlook puts shine on Fresnillo

Fresnillo, the world's largest primary silver producer, led the blue-chip risers last night, advancing by just over 10 per cent after a leading broker highlighted the improving outlook for silver, which has outperformed gold since early March.

Silver prices fell from a high of more than $20 per ounce in early 2008 to below $9 per cent ounce in November as industrial production waned, according to Citigroup, which said prospects now looked rosier as lead indicators appear to be bottoming and turning up in parts of the world. Indeed, the metal has already changed course, outperforming gold in the year to date.

Fresnillo, which has seen its share price ease sharply since early June, stands to benefit, possessing in the broker's eyes "all the ingredients for longer-term outperformance".

"Fresnillo has returned as our top pick amongst the UK gold/silver stocks," Citi said, moving the stock, which closed up 44.5p at 487p, to "buy" from "hold" as it provided an "attractive entry point", and upping its earnings estimates to reflect higher silver prices.

Citi also boosted FTSE 250-listed Hochschild Mining, which was 10.1 per cent or 27.5p stronger at 299.5p after the broker switched its stance to "hold" from "sell" on account of reduced balance sheet risk, and the improving outlook for silver. Hochschild continued to trade at a premium, however, and is likely to lag behind its peers in terms of volume growth, Citi added.

The wider mining sector was buoyed by news from Alcoa, the aluminium giant which posted results overnight, revealing a narrower than forecast quarterly loss; the update lifted the likes of Vedanta Resources, which gained more than 3.6 per cent or 46p to 1,316p, Anglo American, up 5.6 per cent or 87.5p at 1,651p, Xstrata, up 3.9 per cent or 22.7p at 609.8p, and Lonmin, up 9p at 1031p.

Overall, volumes remained weak, leaving the markets range bound, and at the close the FTSE 100 was 18.43 points firmer at 4,158.66, while the FTSE 250 was 37.19 points ahead at 7,234.00.

Legal & General, which advanced to 51.29p, up just over 3 per cent or 1.51p, recovered thanks to some bullish comment from Morgan Stanley and MF Global. The former moved the stock to "overweight", saying that solvency fears were overdone, while the latter upped its stance to "buy" from "neutral". MF Global said: "The prospects for L&G are much better than four months ago. Corporate bond spreads have narrowed, cashflow prospects improved, and management changes are occurring. Yet this is not reflected in the shares."

Aviva, on the other hand, remained unsettled, declining to 291p, down 4 per cent or 12p, as analysts at S&P Equity Research weighed in, switching their stance to "sell" from "hold", with a revised 287p target price, compared with 373p previously.

Further afield, Admiral was also firm, gaining 2.6 per cent or 22.5p to 887.5p, thanks to Bank of America Merrill Lynch, which moved its rating to "buy" from "neutral" on account of the recent weakness in the share price.

"Relative to other companies and industries experience similar levels of growth, such as the business services company Capita in the UK, for example, Admiral looks inexpensive at the current level," the broker said, sticking to its 1,050p target price for the stock.

Elsewhere, the retail sector was the beneficiary of some bullish comment from Citigroup, which said that its new proprietary consumer forecasting model saw positive like-for-like sales growth in the second half of the year.

"With stabilising housing market and consumer confidence surveys, despite headwinds from a heavily indebted consumer and rising unemployment, the consumer has more cash and retailers have weakening comparatives," the broker said, issuing a bunch of ratings and target price changes.

Marks & Spencer and Home Retail Group, both of which were moved to "buy" from "hold", closed 7.5p and 6.5p heavier at 313.75p and 266.5p respectively, while FTSE 250-listed Kesa Electricals, the target price for which was raised to 180p from 150p, gained 0.75p to 103.5p.

Over on the second tier, housebuilders were unsettled as both Barratt Developments, down 3.5p at 151p, and Redrow, down 11.5p at 201p, voiced concern about the lack of mortgage finance.

In response, KBC Peel Hunt, which said updates from the two were "generally more cautious" than the one posted earlier this week by Persimmon, 3.75p heavier at 389.5p, restated its view that "the housing market has a fair way to fall and that the sector is overvalued". Collins Stewart also weighed in, saying that in its view both Redrow and Barratt "need equity", owing to what it terms high levels of debt.

Aveva, which issued an interim management statement yesterday, retreated to 693p, down 14.5p, after Exane BNP Paribas moved its rating on the stock to "neutral" from "outperform" in a software sector review, saying that a recent rally in the shares left it with limited upside. Misys, which was moved to "neutral" from "underperform" in the same review, was also weak, easing to 168.75p, down 2.5p.