UK/Euro Financial Market Daily Morning Briefing 13-09-2006

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London shares open firmer; Next soars after strong H1, tame oil prices

At 8.59 BST the FTSE 100 added 12.5 points at 5,908.0, while the broader markets were also positive. Volume was high, with 435 mln shares exchanging hands in 29,649 deals as investors returned to the market in earnest following the summer lull.
   
Last night, Wall Street rallied for the third consecutive session on Tuesday, with consensus-beating results from Goldman Sachs spurring gains.
   
The DJIA climbed 101.25 points to 11,498.09, while the Nasdaq composite Index rose 42.57, or 1.96 pct, to 2,215.82, its highest point gain since the middle of August, when it added 45.97 points.
   
The positive feeling spread across the markets to Asia, where the Nikkei index ended the morning up 166.03 points at 15,885.37, while the Hang Sang started the afternoon session 143.41 points to the better at 17,218.81.
   
Still in Asia, oil prices recovered fractionally this morning after yesterday's heavy falls to trade below 64 usd per barrel.
   
Over in London, the tame oil prices helped shares in British Airways take off, adding 5-1/2 pence at 430.
   
But it was high street fashion retailer Next that dazzled investors, with the shares firmer by 60 pence at 1,765, an increase of over 3.5 pct, after unveiling stronger-than-expected interim figures.   
   
Earlier today, the group posted pretax profits for the six months to end-July 2006 rose 3.6 pct to 178.9 mln stg, beating analyst forecasts of 162.3-167.6 mln stg, while turnover rose 8.1 pct to 1.51 bln stg. The group has recently been touted as a takeover target for private equity.
   
Reacting to the numbers, Bridgewell Securities repeated its 'buy' recommendation, saying these results are 'well ahead' of consensus estimates. It added that it expects market estimates for Next to increase towards the broker's own high-range numbers, which it thinks implies a market upgrade of around 5 pct.
   
Bridgewell noted that the firm's results reflect tight cost control in Next Retail and exceptional levels of cost control at Next Directory, where warehousing and distribution costs are substantially lower, while web penetration is much higher, now at 45 pct. Buyers also came to UK peer retailer Marks & Spencer, 5-1/2 pence firmer at 601.

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Still on the corporate front, BAE Systems shares were in fine fettle, gaining 4 pence at 389-1/2, an increase of around 1 pct, after the group posted a 34 pct increase in first half profits to 653 mln stg, but tempered by an announcement the company expects 'modest' growth in its defence business for the full year.
   
After the figures, UBS reiterated its 'buy' advice and said EPS could rise by as much as 5 pct after this morning's results "beat expectations significantly".
   
In a note to clients, the broker said EBITA of 788 mln stg topped consensus estimates of 638 mln and its own 667 mln expectation.
   
The headline number included a 63 mln one off benefit from a change in US pension accounting, so a like for like number would be 725 mln, it added -- still well ahead of expectations. Rolls Royce edged up 5-1/4 pence at 447-3/4 following the numbers.
   
A positive comment at the annual report spurred gains in Brambles Industries, 11 pence to the better at 472-1/2, after the group said it expects its pallet distribution and data storage operations to continue to produce solid cash generation.
   
Telecom groups were firm, with Vodafone adding a penny to 118-1/2, as Ofcom's proposals to cut mobile termination rates by 5.8 pct by the year to March 2001, or -1.5 pct a year came in below market expectations.
   
Dresdner Kleinwort said that the proposals were 'much less than expectations and history' of around 10-15 pct per annum.
   
Buyers were also attracted to water utility group Severn Trent, up 9 pence to 1,317 after unveiling plans to return about 576 mln stg to shareholders via a 165 pence per share special dividend from the previously announced demerger of its Biffa waste management business.
   
As part of the demerger, Severn Trent said it is also planning a two for three share consolidation aimed at maintaining its share price around current levels.   
   
On the downside, mining stocks were under the cosh as gold prices slid, losing more than 8 usd to 586 usd per ounce; while copper shed gains to trade at 3.358 usd per pound.
   
Vedanta Resources lost 15 pence at 1,225, Xstrata shed 21 pence at 2,227, Kazakhmys ran back 9 pence at 1,206 while Rio Tinto slipped by 13 pence at 2,525.
   
Peer BHP Billiton was 2 pence lower at 930 after the group declined to comment on speculation it might be offering 205 skr per Boliden share.

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Meanwhile, oil heavyweight Royal Dutch Shell eased by 8 pence at 1,807 after the Russian criticised the group's 10 bln usd cost overruns in the Sakhalin-2 project.  
   
Under the production-sharing agreement that governs the project, the state receives a share of revenues once the initial investment has been paid off.    
   
However, Shell announced in July 2005 that the investment required to develop the project had doubled to 20 bln usd from 10 bln usd, meaning that the Russian government will have to wait much longer for its share of revenues.
   
Carnival shares sank by 10 pence to 2,423 following negative comment from Credit Suisse, which recommended going short on the leisure group ahead of its third quarter earnings release and outlook update next week.
   
Over on second tier, Jordanian generic drug maker Hikma Pharmaceuticals climbed by more than 3.9 pct, up 14-1/4 pence to 379-1/2 as the group unveiled a 9.5 pct rise in first-half profits and maintained its positive outlook for the full year, citing strong revenue growth in its branded and injectable drug businesses.
   
Profits in the six months ended June 30 climbed to 42.4 mln usd from 38.7 mln usd in the same period last year. Revenues rose 17.6 pct to 154.9 mln usd and diluted earnings climbed 2.9 pct to 17.2 cents. The company will pay a dividend of 3.0 cents per share.
   
Paypoint was another gainer, up 17-1/2 to 644-1/2 after Dresdner Kleinwort upped the stock to 'buy' from 'hold' on the back of the broker's raised estimates and price target following this morning's 'positive trading update'.
   
Earlier this morning PayPoint reported transaction volumes to August 26 ahead of last year and said its ATM transactions have grown "substantially".
   
The group also announced that UK terminal growth is ahead of plan and should now exceed its target by the end of the year.
   
In response, Dresdner Kleinwort said that, as suspected, the risk to its estimates is on the upside given the outlook for the business.
   
On the downside, Mytravel was the main casualty, sliding by 18-1/2 pence to 182-1/4, with news that it will make its first profit in 2006 for five years tempered by reduced expectations for the UK after the recent UK travel security alert and the terrorist incidents in Turkey and Jordan, which it said have compounded an already difficult summer.

UK Diary of Events

For a calendar of key financial and corporate events in the UK today, click here

US Summary

For a summary of US stocks at yesterday's close of trade, click here

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PARIS - Market data at 10.10 am:

Major indices:
   
CAC-40 up 20.54 points at 5,146.51
SBF-80 up 4.54 at 5,778.76
SBF-120 up 12.99 at 3,718.38

Volume: 629 mln eur
32 CAC-40 stocks up
5 CAC-40 stocks down
2 unchanged
Arcelor-Mittal enters the index from Sept 18

Major gainers:
   
Vallourec, up 6 eur or 3.5 pct to 175.60 after H1 net profit more than tripled to 452.6 mln eur, with a record operating margin of 30.8 pct.
   
GFI Informatique, up 0.13 or 2.4 pct at 5.51 as it forecast further margin growth this year, after margins rose to 19.2 pct in first half from 14.5 pct.
   
JC Decaux, up 0.36 or 1.6 pct at 22.42 after confirming its 2006 targets with the release of a 15.7 pct rise in first half operating profit to 265 mln eur, ahead of forecasts.

Major losers:
   
Infogrames Entertainment, plunging 0.22 eur or 46.8 pct to 0.25 as trading resumed following yesterday's announcement of a 74 mln capital increase aimed to easing its debt burden.
   
Safran, down 1.37 or 8 pct at 15.68 after first half profits fell sharply, due mainly to further heavy losses for its Communications division. Investors were also disappointed that business divestments in this division were not announced, as had been widely speculated.
   
Gemalto, down 1.97 or 10.6 pct at 16.54 after the smart card maker reported a 47.3 pct slump in pro forma net profit to 34.4 mln usd in the first half, reflecting fierce competition in the mobile phone sector.

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German shares AFX at a glance outlook

Forthcoming Events
   
Today
   
Heidelberger Druckmaschinen attends CSFB's global capital goods conference in London
   
10th Annual Euroforum Venture Capital Conference in Munich (Day 1 of 2)
   
Schering EGM, Berlin
   
Tomorrow
   
10th Annual Euroforum Venture Capital Conference in Munich (Day 2 of 2)
   
Deutsche Beteiligungs analyst conference
   
Lanxess media day, Leverkusen

Company News
   
MAN seen issuing Scania statemnet today; formal bid unlikely today
   
Macroeconomic News

German Aug final CPI down 0.1 pct from July, up 1.7 pct yr-on-yr 

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