UK/Euro Financial Market Daily Morning Briefing 23-02-2007

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London shares easier in early deals after mixed New York, diverse results
 
UK blue chips were easier in early deals having slipped back from opening gains after mixed performances overnight in New York and Asia and as key results also had a diverse impact, with Lloyds TSB lower but WPP Group higher, dealers said.
   
At 9.16 am, the FTSE 100  index was 5.0 points firmer at 6,375.9 having reversed from an early peak of 6.398.9. The broader FTSE indices were mixed. Early volume was fair, with 312 mln shares changing hands in 47,285 deals.
   
Overnight on Wall Street, the DJIA closed 52.39 lower at 12,686.02 as Iran's refusal to suspend uranium enrichment rattled investors. The Nasdaq composite index, however, ended 6.52 points firmer at 2,524.94 as tech issues rallied, spurred by a strong outlook from chip maker Analog Devices.
   
Asian markets were also mixed today, the Nikkei 225 index closed 79.63 points higher at 18,188.42 on the back of the yen's weakness, bolstered by strong foreign institutional support.
   
But the Hang Seng ended the morning session 97.58 points weaker at 20,711.65 on worries that China's stockmarkets may come under pressure next week when they reopen after the week-long Lunar New Year holiday.
   
In London, shares in Lloyds TSB topped the FTSE 100 fallers board, down 17 pence at 596 after the group accompanied an in-line set of full-year numbers with a disappointing outlook statement.
   
Lloyds TSB reported pretax profit for the year to Dec 31 2006, excluding volatility, pensions credits, and disposal gains of 3.713 bln stg, in line with the consensus analyst forecast of 3.7 bln stg. In reaction to the news, Dresdner Kleinwort cut its stance on Lloyds TSB to 'sell' from 'reduce'.
   
The broker pointed out that the bank's pretax profits are only in line, despite a net write-back in Corporate Markets of 13 mln stg, lower retail bad debts in the second half of the year and costs nailed to the floor.
   
Other blue chips banks suffered in sympathy with the Lloyds TSB numbers, with HBOS -- next up to report results in the sector -- losing 8 pence at 1,159, while Northern Rock shed 10 pence at 1,188, and HSBC fell back 6 pence to 901.
   
Elsewhere, broker comment also had an impact for blue chips.
   
Shares in Rolls Royce Group shed 5-1/2 pence at 509-1/2 after being downgraded to 'reduce' from 'neutral' by UBS with an unchanged price target of 475 pence.

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The broker pointed out that Pratt & Whitney's entry into the spare part market is a threat to Rolls Royce.
   
UBS added that it estimates 60 pct of the Rolls Royce installed engine base could be at risk at some stage from this threat.
   
And shares in Capita Group lost 5-1/2 pence at 649 after being downgraded to 'neutral' from 'buy' by UBS following yesterday's full-year results from the London Congestion charge operator.
   
But on the upside, shares in WPP pushed higher, adding 5 pence at 772 after a pleasing set of full-year results.
   
The world's second-largest advertising and marketing group said pretax profit for the year to Dec 31 was 766.3 mln stg excluding exceptional items, on like-for-like revenue growth of 5.4 pct, in line with market expectations.
   
In reaction, Merrill Lynch repeated its 'buy' recommendation and lifted its target to 870 pence, arguing that the group has reported a good set of 2006 numbers, with outperformance driven by higher revenue, lower interest, a substantial reduction in the tax charge and a lower share count.
   
Elsewhere strength in mining issues once again provided an underlying prop for blue chips gains in early deals, with the sector buoyed by ongoing gains in commodity prices and recent consolidation hopes.
   
Antofagasta was the top-placed miner, up 7 pence to 496, while Xstrata added 36 pence at 2,608, BHP Billiton added 13 pence at 1,106-1/2, and Rio Tinto took on 33 pence at 2,898.
   
The biggest FTSE 100 gainer, however, was power station operator Drax, which added another 24 pence at 740 in continuing reaction to revived bid speculation.
   
On the second line, Spectris was the top riser, up 28 pence to 863-1/2 after the group delivered a positive preliminary results statement, prompting Altium Securities to raise its price target to 800 pence from 770.
   
The precision instrumentation and controls company reported adjusted pretax profit of 76.3 mln stg, up from 60.5 mln a year ago, with pretax profit up 69 pct to 85.6 mln stg.
   
Altium Securities said the results were in most respects slightly better than it had anticipated and pointed to improvement likely continuing in the current year.

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Elsewhere Randgold was also a good mid cap gainer, adding 40 pence at 1,254 after Goldman Sachs initiated coverage on the gold miner with a 'buy' rating.
   
The broker said it views Randgold as attractive due to its low costs and high cash returns, the close relationship between its share price and the gold price, and potential upside from its Tongon project, currently in the feasibility stage.
   
But on the downside, Davis Service shares shed 10-1/2 pence at 520 after the group's full-year results came in a touch short of market expectations with Seymour Pierce prompted to cut its stance to 'underperform' from 'hold' in response.
   
Davis Service Group saw its pretax profit before exceptional items for the year to end Dec increase to 85.3 mln stg, up from 85.2 mln the year before.
   
News of a big share placing weighed on First Choice shares, down 6-1/2 pence at 262-3/4 with UBS said to be offering 32 mln shares in the travel operator at around 260 pence each.
   
And broker downgrades impacted Benfield Group, down 4-3/4 pence to 348-1/4 after being cut to 'neutral' from 'buy' by Merrill Lynch, while Bodycote shed 3-1/4 pence at 272-1/2 after Dresdner Kleinwort cuts its stance to 'hold' from 'buy' ahead of upcoming results.

UK Diary of Events

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US Summary

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PARIS - Market data at 9.56 am:

Major indices:
   
CAC-40 down 4.97 points or 0.09 pct at 5,702.89
SBF-80 down 4.10 or 0.06 pct at 7,129.66
SBF-120 down 4.84 or 0.12 pct at 4,182.60

Volume: 715 mln eur
18 CAC-40 stocks up
21 CAC-40 stocks down
1 CAC-40 stock unchanged

Major gainers:
   
Alcatel-Lucent up 0.23 or 2.34 pct at 10.06 after a US court ordered Microsoft to pay 1.52 bln usd in damages to Alcatel-Lucent for violating two patents for MP3 technology.
   
STMicroelectronics up 0.29 or 1.97 pct at 15.01 on the back of strong gains for semiconductor stocks in the US yesterday, which drove the Nasdaq composite index to six-year highs.
   
Lafarge up 1.74 or 1.45 pct at 121.32 after reporting a strong rise in 2006 profits, within the range of analyst forecasts, and issuing upbeat guidance. The cement group expects to exceed its own targets for earnings per share and return on capital employed (ROCE) through 2008.  

Major losers:
   
Carrefour down 0.74 or 1.46 pct at 49.87 after being downgraded to 'hold' from 'buy' by Deutsche Bank, with an unchanged target of 54 eur. The broker said that the retailer stalled in the fourth quarter in France, while key competitors significantly raised their game. It added that Carrefour shares have rallied by almost 18 pct over the last two weeks for speculative reasons, which in likelihood are unjustified.
   
Electricite de France down 0.47 or 0.82 pct at 57.05
   
Seb down 2.29 or 1.75 pct at 128.37
   
Faurecia down 0.95 or 1.73 pct at 54.00

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*Source The Times, December 15th 2006

Amsterdam - Market data at 10.02 am

Major indices
   
AEX                 509.68, up 0.35 points
AMX Midcap          722.34, down 0.85 points
Government bonds    mainly higher

   
Major gainers:
   
Numico was up 1.68 pct at 40.67 eur as it regained ground following losses earlier this week as its fourth-quarter earnings and full-year sales outlook failed to excite
   
DSM was up 1.04 pct at 33.92 as traders shrugged off news US investment company Franklin Mutual Advisors is mulling legal action over the company's loyalty dividend.
   
Heineken was up 0.87 pct at 38.29 eur
   
Royal Dutch Shell was up 0.79 pct at 25.36 eur and SBM Offshore was also trading higher, up 0.40 pct at 27.83 after US crude rose above 61 usd per barrel overnight.
   
Boskalis Westminster was up 1.83 pct at 73.33 eur after winning a 50-50 joint venture with Dredging International in India valued at 125 mln eur.
   
Wereldhave was up 0.02 pct at 107.10 eur as it posted a full year 2006 in-line direct investment result per share and said it is looking to new markets in the US and Turkey in 2007.

Major losers:
   
TomTom was down 2.44 pct to 31.94 eur as Rabo Securities downgraded the issue to 'reduce' from 'hold' due to lower average selling prices for its navigation devices.
   
Getronics was down 1.10 pct at 7.21 eur.
   
VastNed was down 1.50 pct at 79.97 eur after it met its own guidance for a full year 2006 direct investment result per share and predicted a modestly higher result for 2007.
   
Heijmans was down 0.65 pct at 42.99 eur after its full-year 2006 results disappointed yesterday.

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