Market Report: Traders shrug off broker's warning on Pru break-up

Those who have been hankering for a break-up of the Pru may want to think again. Some may argue a series of disposals is the way forward for Prudential, while its boss, Tidjane Thiam, is believed to be supportive of the idea if it can increase value for shareholders, but Nomura warned yesterday that going down this path would be a big mistake.

After running the numbers through his calculator, the broker's analyst, Nick Holmes, declared that in the current market the sum of the insurer's parts came to a mere 492p a share, roughly a third lower than its share price.

The reason behind this premium, he claimed, was that the market's "exaggerated" view of its Asian operations – seen as Prudential's major attraction considering the economic woes elsewhere in the world – had resulted in "an over-valuation" of its businesses in this country as well as the US.

Just to stick the knife in, the analyst kept his "reduce" recommendation and cut his price target to 700p from 715p as he warned that growth from the US was slowing considerably.

Traders were unruffled by his negativity, saying he is renowned for being bearish on Prudential which still managed to push up 7p to 667p. However, it was dragging behind a number of peers including Legal & General – Mr Holmes' top pick – and Aviva, which advanced 2.3p to 112.1p and 9.6p to 324.95p.

The FTSE 100 managed to rally early in the session thanks to relief after both Italy and Spain managed to get bond auctions away successfully.

Yet with the latest developments from the eurozone cheering the City for once, it was the turn of the US to disappoint.

In the wake of fresh data which showed the number of Americans claiming unemployment over the week had increased ahead of expectations, investors pounced on the excuse to bank profits and the benchmark index closed 8.4 points lower at 5,662.42.

The main weight on the Footsie was Tesco which shed a remarkable 16 per cent. The world's third-largest retailer plummeted 61.55p to 323.45p after a profits warning, setting a new, 21-month low.

Its fellow blue-chip supermarkets followed it down, although not quite to the same extent, with Sainsbury's and Morrisons – both of whom have released their festive numbers – declining 16.2p to 285.9p and 18.1p to 285.9p respectively.

Another in the red was Royal Dutch Shell on fears ahead of its full-year results next month. The oil giant slipped 49.5p to 2,278p amid rumours it has been trying to downplay analysts' hopes, while a profits warning from US rival Chevron did not help matters.

Royal Bank of Scotland's decision to axe 3,500 jobs may not have been welcomed by its employees, but dealers were glad to get some clarity over the bank's future direction as it powered up 1.21p to 23p.

Meanwhile, Centrica (down 3.3p to 280.5p) and SSE (down 1p to 1,263p) were on the slide as both followed rival EDF Energy in cutting energy prices, with the former slashing electricity costs while the latter reduced the price of gas.

A wave of negative broker comment hit BSkyB as the satellite broadcaster was pegged back 10.5p to 697.5p.

Investec, UBS and Citigroup all decided to remove their "buy" advice at the same time, as the latter even mulled over whether the group could end up losing the lucrative rights to Premier League football matches to Al-Jazeera.

The scenario was one of 12 "potential surprises" for the media sector in 2012 that analysts from UBS were speculating about, although they admitted that the chance of this particular one happening was "low-to-medium".

They said the same about another rather wild idea on their list – that Downton Abbey-broadcaster ITV (down 0.7p to 73.05p) could merge with a broadband company.

The numerous short positions in Ocado were being heavily squeezed. The under-pressure online grocer spurted up 33.45 per cent to 74p on the FTSE 250 thanks to some decent Christmas figures, although its share price has still lost nearly three-quarters in less than a year.

Down on Aim, DEO Petroleum was grabbing some attention amid vague rumours of stake building.

The North Sea oil firm – which has seen huge volumes traded this week, totalling almost all of its free float – climbed 19.32 per cent to 26.25p as it was also buoyed by finalising the combination of two blocks in the North Sea.

A number of tales were being linked with Africa-focused explorer – and a favourite with the punters – Bowleven's move up of 6.25p to 79.5p, including vague speculation over a potential announcement and the recent revival of bid hopes, although none particularly impressed.