UK/Euro Financial Market Daily Morning Briefing 15-02-2007

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London shares ease in early deals; oils weigh, offsetting Reed Elsevier, Diageo
 
Leading shares slipped lower in early deals as weakness in the oil & gas sector offset stellar performances from Reed Elsevier following plans to sell its struggling education operations and Diageo on the back of its raised guidance, dealers said.
   
At 9.10 am, the FTSE 100 index was 8.3 points lower at 6,412.9, after breaching the 6,400 point level in afternoon trade yesterday to close up 39.4 points at 6,421.2. But the broader indices were marginally higher. Volume was relatively light, with 209.0 mln shares changing hands in 39,830 deals.   
   
In the US overnight, the Dow Jones industrials set new highs when stocks extended their gains for a second day after Federal Reserve Chairman Ben Bernanke told a Senate panel the economy should grow modestly this year and that he expects inflation will continue to ease.
   
The Dow Jones closed 87.10 points higher at 12,741.90, while the Nasdaq Composite added 28.50 points at 2,488.38 and the S&P 500 index took on 11.05 points at 1,455.30.
     
Meanwhile, Asian markets were in a jubilant mood this morning, with Tokyo's Nikkei 225 index closing up 144.59 points at 17,897.23 and Hong Kong's Hang Seng ending 92.54 points higher at 3,142.94 ahead of the Chinese New Year
celebrations this weekend.
   
Still in Asia, oil prices were little changed following last night's decline, sparked by a report showing higher-than-expected US stockpiles of heating fuel.
   
Earlier this morning, New York's main contract, light sweet crude for delivery in March, was up three cents at 58.03 usd per barrel after falling 1.06 usd to 58.00 in late US trades overnight. Brent North Sea crude for April rose six cents to 57.49 usd.
   
In London, Reed Elsevier led the risers, taking on 5.7 pct, or 34-1/2 pence at 639, after the Anglo-Dutch publisher announced plans to sell its under-performing education division and return the proceeds to shareholders, overshadowing slightly dull sales figures for the full-year.
   
Reed, which counts the Lancet medical journal and New Scientist magazine among its 15,000-plus publications, said adjusted pretax profit rose 5 pct to 1.02 bln stg on revenue up 4 pct to 5.39 bln.
   
Peers Pearson, Reuters and WPP Group followed suit, gaining 9-1/2 pence at 826, 2-1/2 pence at 429-1/2 and 5-1/2 pence at 756-1/2, respectively.
   
Meanwhile, Diageo was close on Reed's heels, up 36 pence at 1,057 -- a climb of almost 3.6 pct, as the world's largest alcoholic drinks producer reported organic operating profit growth of 8 pct in the first half and raised its full-year guidance to 8 pct organic operating profit growth.

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In response, Credit Suisse reiterated its 'outperform' stance and said today's numbers beat its expectations at the EPS level, driven by a beat at the organic operating profit growth level.
   
But the broker added that although the raised organic growth guidance suggests the group is now better set to deliver, the much expected increase in the anticipated forex hit means the broker's 2007 EPS estimate is unchanged.
   
Results apart, BAE Systems took on 7-1/4 pence at 450, benfiting from price target hikes from both Merrill Lynch and Credit Suisse.
   
In a note to clients, Merrill Lynch said this morning that it has upped its target to 515 pence ahead of the defence group's results next week, partially from peer re-rating and partially lower pension underfunding, and reiterated its 'buy' rating.
   
And Credit Suisse lifted its target to 500 pence while sticking with its 'outperform' stance, saying it sees potential for the company to deliver solid operating results and cash flow next Thursday.
   
These strong performances were offset however by the UK's oil heavyweights following last night's oil price fall, with Cairn Energy down 10 pence at 1,626, BP slipping 1 pence at 535 and Royal Dutch Shell losing 6 pence at 1,689.
   
But the main casualty was Wolseley, which fell back 36 pence at 1,371 after Merrill Lynch cut its stance to 'neutral' from 'buy' as the stock now trades very close to its 1,420 pence price target following recent outperformance, and also because the broker believes negative trends in the sub-prime mortgage sector may mean a recovery is still some way off.
   
Elsewhere, ICI eased 3-1/2 pence at 474-1/2 following mixed numbers from Dutch peer Akzo Nobel, which was over 3.4 pct lower in Amsterdam in early deals, and also with investors deflated by the lack of comment from Akzo following sustained rumours the group is stalking ICI.
   
On the second line, Tomkins fell over 3 pct, down 8-1/2 pence at 266-1/2, as a cautious outlook offset a set of otherwise "in-line" full-year figures.
   
This morning, the engineering group warned it expects a tough market in 2007 to impact its performance year-on-year, as it unveiled adjusted annual profit from total operations of 298 mln stg, down from 308.7 mln stg previously. Merrill Lynch said the fourth quarter figures missed its estimates and reiterated its 'sell' recommendation.
   
And Cobham was also down in the dumps, 3 pence easier at 2206-3/4 as UBS downgraded its rating to 'neutral' from 'buy' on valuation grounds, saying it cannot justify the stock's strong run in the absence of earnings upgrades.
   
However, UBS said the group's full year results, due on March 15, could be a catalyst for changes to earnings forecasts, while the recently announced US defence budget could also benefit the stock.

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On the upside, Pendragon led the mid-cap gainers, up 4-1/4 pence at 104, thanks to positive full-year results, which this morning prompted KBC Peel Hunt to upgrade the car retailer to 'reduce' from 'sell' and Citigroup to reiterate its 'buy' stance.
   
Pendragon said its full-year pretax profit rose 51 pct to 96.4 mln stg as revenues were boosted by the acquisition of rival Reg Vardy.
   
On the economic front, Thursday is one of the busiest days on the data calendar both at home and abroad. UK house price growth as measured by the survey of the Royal Institution of Chartered Surveyors is expected to have slowed in January. Analysts forecast the RICS will show house price balance of 32, down from the 37 seen in December.
   
Meanwhile, UK retail sales are forecast to have remained buoyant in January after a strong Christmas period, helped to some extent by heavy discounting.
   
Retail sales are forecast to have grown 0.1 pct month-on-month and 5.2 pct year-on-year, up from the 3.7 pct registered in December.
    
Over the US later today, import prices are seen falling in January by 1.0 pct after rising by 1.1 pct in the prior month. "Comparatively mild winter weather should have restrained prices for imported energy products," said Jeoff Hall of Thomson's IFR Markets.
   
First time jobless claims are seen falling to 310,000 in the latest week after reaching 311,000 in the prior week.
   
Industrial production is seen remaining flat after rising 0.4 pct in the prior month, while capacity utilization is expected to have fallen a tick to 81.7 pct.
   
The Philadelphia Fed's survey of manufacturing activity is seen falling to 5.1 in February from 8.3. The index suggested contraction in December, the first negative figure in 18 months. However, January rebounded sharply to its best showing in five months. 
 

UK Diary of Events

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US Summary

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PARIS - Market data at 9.25 am:

Major indices:
   
CAC-40 down 4.26 points or 0.07 pct at 5,721.58
SBF-80 down 10.15 points or 0.14 pct at 7,102.69
SBF-120 down 3.55 points or 0.08 pct at 4,192.36

Volume: 689 mln eur
22 CAC-40 stocks up
17 CAC-40 stocks down
1 CAC-40 stock unchanged

Major gainers:
   
Capgemini, up 2.10 eur or 4.14 pct at 52.85, after full-year net jumped and the company forecast higher margins in 2007.
   
LVMH, up 2.75 eur or 3.32 pct at 85.60, after posting higher full-year results and guidance for more gains in 2007.
   
Danone, up 3.00 eur or 2.50 pct at 123.20

Major losers:
   
BNP Paribas, down 2.35 eur or 2.70 pct at 84.65, as analysts questioned the quality of underlying performance despite in-line results.
   
Credit Agricole, down 0.54 eur or 1.63 pct at 32.58, as all banks were underperforming with disappointment at yesterday's Societe Generale results adding to the concerns.
   
Societe Generale, down 1.50 eur or 1.09 pct at 135.80

According to The Times newspaper, one of our products rose in value by 90%* last year and our market outstripped the FTSE 100 by 36.1 %.*

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*Source The Times, December 15th 2006

German shares AFX at a glance outlook

Forthcoming Events

Today
   
Infineon AGM (0900)
   
Bundesbank monthly report (0900)
   
Premiere FY results
   
Tomorrow
   
German final CPI, HICP (07.00)
   
Company News
   
Daimler Chrysler European Jan New Car registrations down 2.3 PCT year on year
   
BMW European Jan new car registrations down 1.1 PCT year on year

Market News
  
Volkswagen cut to underweight from neutral by JP Morgan; tgt 80 eur from 85. 

Daimler Chrysler  upgraded to buy vs add at Dresdner Kleinwort

Air Berlin started as buy by UBS, target 21 eur.

European Steel upped to market weight from underweight at Credit Suisse.

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