UK/Euro Financial Market Daily Morning Briefing 22-11-2006

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London shares open firmer; ICI gains on disposal, DSG weak after H1 figs

Leading shares opened firmer this morning with gains in Imperial Chemical Industries on the back of disposal news offsetting a "mixed" set of interim figures from DSG International, and following a positive session overnight on Wall Street ahead of the Thanksgiving holiday.
   
At 9.14 am, the FTSE 100 added 16.8 points at 6,219.2, up from a close of 6,202.6 on Tuesday, while the wider market was also positive. Volume was moderate with 347 mln shares changing hands in 44,109 deals.
   
Overnight, Wall Street clocked gains ahead of Thanksgiving, with retailers in focus ahead of one of the biggest shopping days of the year on Friday.
   
The DJIA added 5.05 points to 12,321.59 while the Nasdaq composite index rose 2.12 points to 2,454.84, with Google rallying more than 2 pct to a intraday high of 509.88 usd, while Dell closed 8.8 pct firmer after posting consensus-busting third-quarter results driven by solid sales of laptops and a more diverse product line.
   
The upbeat mood spilled over into Asian markets, with the Nikkei index closing up 180.09 points at 15,914.23, while the Hang Seng closed up 242.49 points at a record 19,250.79.
   
Crude oil prices were marginally lower after climbing above 60 usd yesterday on news bad weather had interrupted oil shipments at Alaska's key export terminal. New York light sweet crude contracts for January delivery were down 20 cents at 59.95 usd a barrel.
   
BP shares climbed 5 pence to 590, while Royal Dutch Shell B clocked up 11 pence to 11,92, and Cairn Energy added 56 pence at 1,946.
   
Topping the gainers board, shares in Imperial Chemical Industries benefited from news it is selling its fragrance and flavour business Quest to Switzerland's Givaudan for 1.2 bln stg.

ICI shares rallied by more than 9 pct, or up 35-1/2 pence to 422-1/2. In a separate statement, ICI said it expects to make a profit after tax of 900 mln stg from the sale of Quest, although the deal is expected to be earnings neutral in 2006 for ICI.
   
In response, Merrill Lynch reiterated its 'buy' advice and said although the price was good it was slightly below its sum of the parts valuation. In a note to clients, the broker said the deal is good financially as it will leave ICI with a much stronger balance sheet.
   
British Airways advanced by 12-1/2 pence to 493-1/2 after Australia's flag carrier Qantas Airways Ltd announced it had received a buyout approach for an undisclosed amount from a consortium led by Macquarie Bank and private equity firm Texas Pacific Group.

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On the corporate front, Johnson Matthey shares took on 6 pence at 1,459 as the market welcomed a set of "in-line" interims, with an upbeat view of the future after posting an 8 pct rise in profits in the first half.
   
Reacting to the figures, Merrill Lynch maintained its 'buy' recommendation, noting that results from the company's precious metals division were much stronger then forecast, bolstered by the price of platinum reaching record highs earlier this week.
   
Meanwhile, the heavyweight mining sector climbed higher amid market rumours that BHP Billiton could be mulling a bid for Freeport-McMoran Copper & Gold Inc, which Monday unveiled its own bid for Phelps Dodge Corp.
   
Yesterday, following Freeport's offer Monday to buy Phelps for the equivalent of 125.27 usd per share in cash and shares, market speculation centred on the possibility that UK miner Rio Tinto PLC could counter-bid for Phelps, while today's rumour mill suggests BHP could itself bid for Freeport.
   
Responding to the market talk, a dealer at a major European bank said a BHP-Freeport deal could enable the UK group to increase its copper earnings and to lift its number two position to the largest global copper producer ahead of Codelco.
   
BHP Billiton climbed 22 pence to 988, Antofagasta added 11-3/4 pence to 484-3/4, Xstrata gained 44 pence to 2,272, Rio Tinto was 45 pence stronger at 2,271 while Anglo American took on 36 pence to 2,469 and Lonmin added 30 pence to 3,110.
   
In other developments, British Energy Group shares gained 5 pence at 494 after JP Morgan upgraded to 'overweight' from 'neutral' as the broker believes the boiler problems at Hinkley and Hunterston are already priced in.
   
JP Morgan said the boiler issues are prompting it to lower its 2006-07 output assumptions to 52 terawatt hour (TWh) from 57 TWh, while cutting its EBITDA estimates by 16 pct to 1,287 mln stg.
   
However, the broker said it is already discounting this potential downside, which makes the stock look "cheap" in absolute terms and relative to an overvalued UK generation sector.
   
Legal & General shares were 2 pence stronger at 155-1/2 after Credit Suisse upped the stock to 'neutral' from 'underperform' in a sector review, while upping its target to 159 from 126.
   
Credit Suisse said that both Legal & General and Friends Provident appear to have efficient administration and good customer service platforms, which should allow them to avoid major back-book problems and could hold them in a good position for the future.
   
Friends Provident shares were a penny firmer at 216-3/4, after Credit Suisse upped its price target to 248 from 235.

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On the downside, DSG International was hard hit, the main casualty after losing 9 pence at 209-1/2 following the group's "mixed" trading update. The group, formerly known as Dixons, saw total sales increase 14 pct, while like-for-like sales, which strip out the impact of new and closed space, were up 5 pct.
   
Reacting to the update, Citigroup remained a 'buyer', but warned that while the 5 pct rise in like-for-like sales was ahead of its 4 pct forecast, this looks to be more than offset by margin erosion at UniEuro and PC City.
   
Furthermore, it added while the strong Nordic, Irish and Greek markets saw accelerating like-for-like trends, both Italy and the UK saw sales trends fade.
   
Ex-dividend factors also weighed, shaving 10 points off the index, with Scottish Power, Next, Vodafone, Sainsbury, Rolls Royce all going ex-dividend.
   
On the second line, disposal news saw Northern Foods shares add 5-1/2 pence at 108, after the maker of Goodfella's pizza and Fox's biscuits confirmed it is selling its speciality bread, chilled pastry, cakes and flour milling businesses to private equity firm Vision Capital for 160 mln stg.
   
Meanwhile, Great Portland Estates gained 21 pence to 639 after being upgraded to 'buy' by Merrill Lynch as part of a UK property sector note, in which the broker highlights the UK company's above-average growth rate and the inbuilt value in the group's development programme.
   
Positive interim figures boosted gains in London Merchant Securities, up a penny to 290, with the group reporting a 57 pct rise in pretax profit, while noting that its proposed tie-up with Derwent Valley Holdings has "excellent growth prospects".
   
On the downside, Kensington Group slumped more than 10 pct, down 90-1/2 pence to 814-1/2, after the sub-prime mortgage lender cautioned full-year pretax profits will be at the lower end of the forecast range. In response, Teather & Greenwood downgraded the stock to 'hold' from 'buy'.
   
Elsewhere, midcap buy-to-let mortgage lender Paragon Group of Companies fell prey to profit-taking, down 9-1/2 pence at 665 after releasing a 15.5 pct increase in full-year profit, helped by a robust increase in lending volumes, and compared with analysts' forecasts of a 6.7 pct increase.

UK Diary of Events

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US Summary

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AMSTERDAM  - Market data at 10.12 am
   
Major indices
   
AEX                 493.68, up 1.95 points
AMX Midcap          642.33, up 2.36 points
Government bonds    Flat to higher

Major gainers
   
TomTom rose 2.39 pct to 37.33 eur
   
Akzo Nobel added 1.05 pct to 44.28 eur
   
ASML gained 0.86 pct to 20.02 eur
   
Van der Moolen advanced 2.01 pct to 4.06 eur
   
Ahold put on 0.38 pct to 7.83 eur after reports the company held talks with hedge funds Centaurus and Paulson, which are seeking a break-up of the company

Major losers
   
Numico lost 0.50 pct to 38.12 eur
   
Corus shed 0.27 pct to 7.45 eur as investors locked in profits after recent sharp gains
   
Hagemeyer dropped 0.53 pct to 3.77 eur

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PARIS - Market data at 10.04 am:

Major indices:
   
CAC-40 up 17.74 points or 0.32 pct at 5,477.09
SBF-80 up 29.65 points or 0.44 pct at 6,582.09
SBF-120 up 13.92 points or 0.35 pct at 3,995.32

Volume: 746 mln eur
30 CAC-40 stocks up
9 CAC-40 stocks down
1 CAC-40 stock unchanged
  
Major gainers:
   
   
EADS, up 0.55 eur or 2.41 pct at 23.38 eur on reports that DaimlerChrysler will transfer part of its stake in the Airbus maker to a pool of banks including Goldman Sachs.
   
Michelin, up 1.45 eur or 2.19 pct to 67.75 eur.
   
Mittal, up 0.65 eur or 2.01 pct at 32.96 eur on continued takeover activity in world steel and mining sectors.

Major losers:
 
Credit Agricole, 1.22 eur or 3.59 oct at 33.05 eur, following disappointing third quarter results.
   
GDF, down 0.77 eur or 2.32 pct at 32.41 as investors absorb the likely four-month delay to the merger with Suez following a court ruling yesterday.
   
Suez, down 0.82 eur or 2.28 pct at 35.66 eur.

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FRANKFURT - Market data at 10.09 am 

Major indices:
   
DAX - up 27.01 points or 0.42 pct at 6,487.40
MDAX - up 88.17 points or 0.99 pct at 8,997.61
TecDAX - up 4.85 points or 0.69 pct at 709.69
DAX future - up 25.0 points or 0.39 pct at 6,500.50  

Major losers:
   
Altana down 0.25 eur or 0.55 pct at 44.86
   
DaimlerChrysler, down 0.21 eur or 0.45 pct at 46.63
   
BMW, down 0.11 eur or 0.25 pct at 44.04
   
TUI, down 0.03 eur or 0.19 pct at 16.14
   
Adidas, down 0.06 or 0.16 pct at 37.58

Major gainers
   
Deutsche Boerse, up 4.32 eur or 3.33 pct at 134.06
   
ThyssenKrupp, up 0.53 eur or 1.84 pct at 29.37
   
Deutsche Postbank, up 0.82 eur or 1.32 pct at 63.12
   
Deutsche Bank, up 1.20 eur or or 1.18 pct at 103.04
   
Deutsche Lufthansa, up 0.22 eur or 1.16 pct at 19.17

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