UK/Euro Financial Market Daily Morning Briefing 22-02-2007

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London shares up in early deals; BAE jumps as FY pleases, Kingfisher down

Leading shares opened higher, recouping some of yesterday's losses when UK blue-chips tracked the Dow Jones' declines, with BAE Systems up on the back of pleasing FY results, while Kingfisher dropped after a disappointing trading update, dealers said.
   
At 8.50 am, the FTSE 100 index was 36.6 points ahead at 6,393.7 after closing down 55.2 points at 6,357.1 yesterday, while the broader indices were also positive. Early volume was solid, with 258.6 mln shares changing hands in 41,313 deals.
   
In the US overnight, stocks fell into the red after CPI inflation data showed a higher-than-expected increase last month and leading indicators failed to rise as much as expected, providing investors with an excuse to take profits following the Dow's recent record run-up.
   
Minutes from the Federal Reserve's last meeting also showed the central bank considered, but decided against taking a more dovish tone on the threat of inflation.
   
The Dow Jones closed 48.20 points lower at 12,738.40 and the S&P 500 index ended down 2.05 points at 1,457.65, but the Nasdaq Composite recovered in late trade to close at a six-year high of 2,518.42, up 5.38 points.
   
Meanwhile, in Asia this morning, the mood was buoyant as Tokyo's Nikkei 225 index closed 195.58 points stronger at 18,108.79 and Hong Kong's Hang Seng closed up 57.81 points at 20,809.23.
   
The Nikkei topped the 18,000-point mark for the first time in nearly seven years, on broad-based buying from both local and foreign investors as the yen remained soft despite yesterday's rate hike by the Bank of Japan, dealers said, while the Hang Seng was buoyed in part by ongoing interest in China Mobile.
      
Earlier this morning, the New York Mercantile Exchange's main oil futures contract, light sweet crude for delivery in April, was down 0.04 usd at 60.03 usd a barrel. Brent North Sea crude for April delivery had slipped 0.01 usd to 59.34 usd.
   
In London, the mining industry offered support after yesterday's sector weakness, when individual stocks tracked easing base metals prices. This morning Xstrata was up 55 pence at 2,534, Rio Tinto took on 56 pence at 2,849 and BHP Billiton added 17-1/2 pence at 1,088.
   
But the top index performer was BAE Systems, 12-3/4 pence higher at 460, after the defence and aerospace group reported a 32.7 pct rise in annual pretax earnings and a 3 pct increase in its order book and forecast a further year of good growth.
   
The Farnborough-based firm said full-year earnings before interest, tax and amortisation (EBITA) were 1.207 bln stg against 909 mln stg last time while the order book lifted to 31.7 bln stg from 30.8 bln previously.

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Centrica also gained, taking on 8-3/4 pence at 379, following a strong set of full-year results, which came in ahead of both the company's guidance and market expectations.
   
The utility released full year results showing operating profits down 5 pct to 1.44 bln stg, while turnover climbed 22 pct to 16.5 bln stg, with adjusted earnings per share up 7 pct to 19.4 pence.
   
In reaction, Goldman Sachs reiterated its 'buy' stance, noting that Centrica's earnings have been aided by lower wholesale gas prices in the last few months of the year and it expects this to have further upward pressure on forecasts for 2007.
   
Sticking with results, Hanson was 5-1/2 pence stronger at 835-1/2 in early deals after the building materials group beat market expectations by posting a 12 pct rise in full-year pretax profit, attributing the increase to a "strong finish" in its North American aggregates division and additional property profits.
   
Hanson's full-year profits rose to 480.8 mln stg from 429.3 mln a year ago and the company said it expects further progress in 2007 with capital investment in new plant and equipment expected to increase by around 100 mln stg and an "encouraging" pipeline of potential acquisitions, especially in North America.
   
Drax Group was also in demand, 24 pence ahead at 715, buoyed by bid rumours circulating the market.
   
And shares in Alliance & Leicester added another 1 pct today on top of yesterday's almost 8 pct rise on the back of pleasing full-year results and share buyback news.
   
On the downside, meanwhile, Kingfisher led a small group of casualties, falling 4-3/4 pence at 250-1/4 after issuing a trading update that Credit Suisse said it believes will be seen as disappointing and could lead to consensus downgrades.
   
Europe's largest home improvement retailer announced this morning that it expects to announce on March 29 full-year profit before tax and exceptional items "slightly ahead" of the current consensus of analyst expectations -- some 390 mln stg, down from 445.7 mln stg in the prior period.
   
But Credit Suisse said it thinks consensus profit forecasts for 2007/2008 are now likely to come down by around 5 pct, reflecting a deterioration in the group's French gross margin prospects and continued lacklustre trading at Castorama.
   
Capita Group was also out of favour, 10 pence weaker at 658, as the market digested the group's full-year results, which were described by Deutsche Bank as "slightly shy of estimates" and by Citigroup as "boring" but "in-line".
   
The UK support services company behind London's traffic congestion charging scheme said pretax profit for the year to December 31 was 200.1 mln stg after goodwill amortisation and a share-based payment charge, versus 169.6 mln a year earlier, and slightly below analysts' average forecast of 202 mln stg.

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Among second-liners, CSR soared 12.5 pct, up 93-1/2 pence at 842-1/2, following full year results that showed a 35 pct rise in pretax profits -- above analysts' forecast -- on revenues up 45 pct to 704.7 mln usd.
   
The Bluetooth chip company said it is confident that the company will meet its expectations for 2007 and that it expects 2007 first quarter revenues to be in the range of 145 mln usd to 160 mln usd with generally improving visibility across its markets.
   
In response, UBS reiterated its 'buy' advice and said the market would be encouraged by the numbers and guidance of improving visibility and inventory normalisation.
   
Bullish broker comment fuelled gains in First Choice, 6-1/2 pence better at 269-1/2, thanks to JP Morgan initiating coverage on European Tour Operators with an 'overweight' recommendation.
   
The broker said that although the market consensus is that the sector remains strategically challenged, it thinks this is old news and that each company is adapting its strategy to the new world. It added that valuations do not look expensive and further consolidation seems likely.
   
On the downside, Rentokil Initial plummeted 8.6 pct, losing 14 pence at 148-3/4, after posting a 6.2 pct fall in underlying pretax profit for 2006 reflecting major restructuring undertaken last year and issuing a cautious outlook.
   
The company forecast 2007 to be a year of stabilisation, with profits in line with 2006, but said some regression is expected in the first quarter due to declining trends in its textiles & washroom services.
   
In response, UBS reiterated its 'reduce' recommendation and said although 2006 profits were in line with market expectations, organic growth slowed in the fourth quarter to 2.2 pct, due to weakness in UK Pest Control and Electronic Security.
   
Investors also sold off Colt Telecom, 8-3/4 pence weaker at 168-3/4, as investors overlooked its narrowing full-year pretax loss of 18.8 mln eur and focused on the greater-than-expected 1.1 pct fall in total revenues and the "harder than normal to predict" outlook.
   
And N Brown traded 8 pct lower, down 28-1/4 pence at 324-3/4 as it went ahead with its approved return of value of approximately 80 mln stg by way of a B share scheme and listed new ordinary shares.

UK Diary of Events

For a diary 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 9.40 am:

Major indices:
  
CAC-40 up 34.95 points or 0.61 pct at 5,729.51
SBF-80 up 27.14 points or 0.38 pct at 7,142.95
SBF-120 up 24.47 points or 0.59 pct at 4,202.03

Volume: 410 mln eur
37 CAC-40 stocks up
3 CAC-40 stocks down

Major gainers:
   
Technip, up 1.41 eur or 2.79 pct at 51.95, after posting strong full year results and announcing an exceptional dividend.
   
Axa, up 0.64 eur or 1.93 pct at 33.77, after posting full year results that were much better than some analysts' expectations.
   
Arcelor Mittal, up 0.71 eur or 1.84 pct at 39.35, as two brokers raised their targets amid company forecasts that 2007 results will be stronger than in 2006.

Major losers:
   
Safran, down 0.09 eur or 0.50 pct at 17.96
   
Vivendi, down 0.18 eur or 0.59 pct at 30.52
   
EADS, down 0.03 eur or 0.12 pct at 25.80. Former Airbus chief Jean Pierson, interviewed in Les Echos, raised the prospect of breaking the unit into separate French and German companies as one way out of the restructuring impasse.

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German shares AFX at a glance
 
Forthcoming Events
   
Today
   
Deutsche Boerse annual news conference
Allianz FY results, annual news conference (0900)
BASF FY results, annual news conference
Continental FY results, annual news conference
Fresenius Medical Care FY results, annual news conference
ProSieben Sat.1 Media AG FY results
German final Q4 GDP (0600)
FY 2006 public deficit (0600)
   
Tomorrow
  
RWE FY results
Allianz analysts conference
Ifo Feb business survey (0900)
Press briefing with the head of DaimlerChrysler's truck group, Andreas
Renschler (1000)

Macroeconomic News
   
German 2006 budget deficit ratio 1.7 pct of GDP vs 3.2 pct
German Q4 final GDP growth 0.9 pct vs Q3; confirms preliminary result

Market News
   
TUI initiated at JP Morgan with 'overweight'; price target 23 eur

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