UK/Euro Financial Market Daily Morning Briefing 25-05-2007

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London shares open lower; miners weigh, Mitchells & Butlers falls
 
Leading shares traded lower in early deals after Wall Street fell back amid interest rate fears, and weighed down by mining sector losses, while Mitchells & Butlers led the blue-chip casualties following a broker downgrade, dealers said.
   
At 8.54 am, the FTSE 100 index was 18.0 points weaker at 6,547.4, extending yesterday's losses when the Footsie closed down 51.0 points at 6,565.4, while the broader indices also traded in the red. Volume was fair, with 231.9 mln shares changing hands in 39,663 deals.
   
In the US overnight, Wall Street retreated after housing data showed sales surged in April by the largest amount in 14 years and dampened hopes that an interest rate cut would be needed to stimulate the economy.
   
Investors were originally enthusiastic after the Commerce Department reported sales of single-family homes rose 16.2 pct last month after falling slightly in March. Although the report indicated that the economy continues to expand, investors became unnerved amid suggestions the Federal Reserve might be successfully steering the economy toward a soft landing and that a rate cut might not be needed.
   
The Dow Jones closed down 84.50 points at 13,441.10, while the Nasdaq Composite dropped 39.13 at 2,537.92 and the S&P 500 index lost 14.80 at 1,507.50.
   
Meanwhile, Asian markets were hit hard this morning amid the combined impact of a market bubble forming in China and receding hopes for an early reduction in interest rates in the US. Tokyo's Nikkei 225 index closed down 215.76 points at 17,481.21, while Hong Kong's Hang Seng was 300.58 behind at 20,498.39 by midday.
   
In London, mining issues weighed on the Footsie, extending overnight declines in Asian deals on the back of easing base metals prices, with Lonmin 43 weaker at 3,813, Rio Tinto 13 lower at 3,517 and BHP Billiton 9 behind at 1,173. BHP and Rio were also under pressure from bearish broker comment, with SG Securities downgrading the two to 'hold' from 'buy' and 'sell' from 'hold' respectively.
   
Reacting to recent sector consolidation rumours, the broker told clients it continues to see no pressing need for the likes of BHP or Rio to turn aggressively to M&A, adding that it thinks further M&A deals would likely be value destroying.
   
But Mitchells & Butlers was the main casualty, down 20-1/2 at 854-1/2, with Deutsche Bank downgrading the pubs and restaurant group to 'hold' from 'buy', but raising the price target to 974 pence from 820.
   
The broker said in a note this morning it sees potential delays in the company's decision to push its capital structure to new levels, adding that the shares have already risen in anticipation of its completion, despite the uncertainty over final details.
   
Elsewhere, International Power was also under pressure, 2-3/4 lighter at 454-1/4, after the power station operator announced it has exercised its option to acquire the remaining 50 pct of the Energy Australia and International Power (Australia) retail energy partnership, for which it will pay 142 mln aud.

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On the upside, meanwhile, British Airways was among only a handful of blue-chip risers, up 1-1/2 at 459, after the Times reported that a key Iberia shareholder, Caja Madrid, has asked Credit Suisse to seek rival offers for the Spanish airline amid concerns that the approach led by the UK national carrier is too low.
   
Earlier this week, the UK carrier confirmed that it has joined with TPG Capital, Vista Capital, Inversiones Ibersuizas and Quercus Equity to consider a possible consortium offer for the airline, reported potentially to be worth 2.3 bln stg.
   
And sticking with M&A, Imperial Tobacco took on 4 to 2,121 amid press reports the tobacco company has resumed merger talks with Altadis since the Spanish-French tobacco manufacturer allowed its UK peer limited access to its books, according to Negocio.
   
The newspaper said sources at Altadis confirmed both Imperial and a bidding partnership between CVC and PAI Partners have now had access to the group's books but did not specify the type of information granted.
   
On the broker front, GlaxoSmithKline also outperformed the wider falling market, albeit sliding 2 to 1,331, after SG Securities upgraded the pharma giant to 'hold' from 'sell', citing its belief that the current share price now adequately reflects the stock's risk reward profile following recent falls on the back of the Avandia scare.
   
On the second tier, Computacenter led the fallers, 13-1/2 lower at 241 after Goldman Sachs initiated coverage of the IT infrastructure service provider with a 'sell' recommendation and 250 pence target. The broker said Computacenter's efforts to transform itself into a services-led business and to contain the decline in its products business continue to prove challenging.
   
Returning to earnings, pubs group and brewer Marston's lost 12 to 453-3/4 after revealing a mixed set of interim results.
   
Marston's this morning unveiled underlying pretax profit increased just 1.5 pct to 41.6 mln stg for the first half ended March 2007, with like-for-like sales up 7 pct and average EBITDA per pub at the Pub Company division up 15 pct.
   
In response, KBC Peel Hunt noted that, unlike Mitchells & Butlers, Marston's has note proposed any property separation, although the company has increased its share buyback programme to 150 mln stg from 100 mln and hiked its dividend up by 20 pct -- ahead of the broker's 10 pct hike expectation.
   
And among the mid-cap gainers, Woolworths led the way, taking on 1 to 28-3/4 -- a rise of 3.6 pct, after the retailer revealed said its entertainment wholesale subsidiary, Entertainment UK (EUK), is to supply entertainment products to Wal-Mart Store's Asda stores in a deal that is expected to provide annual revenue of about 200 mln stg for the UK group.
   
Upbeat broker comment helped mid-caps elsewhere, with Shaftesbury 15-1/2 higher at 707 after JP Morgan upgraded the stock to 'overweight' from 'neutral' as part of a European property review, in which the broker focused on a higher required return following recent interest rate increases in the UK and the euro zone area.

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Similarly, EMAP also enjoyed a broker upgrade, with the shares up 18-1/2 at 875, after Morgan Stanley raised its recommendation to 'overweight' from 'equal-weight' saying it believes the departure of chief executive Tom Moloney should prompt change at the publisher. Morgan Stanley also hiked its price target by 33 pct to 1,025 pence from 770, implying around 19 pct upside to current levels.
   
And Burberry was 11-1/2 better at 679 as UBS upgraded the luxury fashion retailer to 'buy' from 'neutral' with the price target hiked to 810 pence from 660 on the back of the broker's raised estimates following yesterday's full-year results.
   
In a note landing on fund managers' desks this morning, the broker pointed out that Burberry has adopted a different business model, incorporating accelerated outsourcing, fast retail expansions and rigorous cost reductions.
   
Finally, back with those issuing trading updates today, Aegis Group added 2-1/4 to 147-3/4 after announcing in an AGM statement that 2007 has started well with strong organic revenue growth across its businesses, and saying it remains confident of good underlying progress in the coming year.
   
The media buying and market research group said first-quarter organic revenue growth rose to 8.5 pct, while total revenue rose 10.8 pct at constant currencies, and by 4.6 pct at reported rates, mainly helped by strong growth in both the Asia-Pacific and Europe, Middle East and Africa markets.
   
On the economic front, figures due to be released today are expected to confirm that the economy grew by 0.7 per cent in the first quarter of 2007 for a year-on-year rise of 2.8 per cent. The first revision will include further details on the contributions from expenditure, investment and trade.
   
HSBC economist Karen Ward is forecasting slow consumer spending growth of 0.3 per cent on the quarter, with government spending up 0.6 per cent and investment growing at 1.5 per cent.
   
Meanwhile, the March index of services is expected to show the sector's output grew by 0.8 per cent in the three months to March, as it did in the three months to February, confirming the figure given in the preliminary estimate of first quarter GDP.

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AMSTERDAM - market data at 10.05 am

Major indices
   
AEX 534.46, down 1.53 point, 0.29 pct
AMX midcap 725.41, down 3.53 points, 0.48 pct
Government bonds flat to higher

Major decliners
   
Getronics went 1.90 pct lower to 5.67.
   
Wereldhave was off 1.87 pct at 105.88 after JP Morgan downgraded the issue to 'underweight' from 'neutral', with a 109 eur price target.
   
Crucell slid 1.35 pct to 17.53.
   
LogicaCMG shed 1.26 pct to 2.35.
   
Arcelor Mittal was down 1.04 pct at 42.89.
   
Corporate Express shed 0.93 pct to 9.62.
   
Akzo Nobel slipped 0.85 pct to 59.55.
   
ABN Amro and Fortis were off 0.08 pct at 35.47 and 0.16 pct lower at 30.96, both leading the AEX however in volume of trade after The Royal Bank of Scotland-led consortium vying to buy ABN Amro said it will announce whether or not it plans to make a formal bid for the Dutch bank on Tuesday May 29.
 
Major gainers
   
Heineken rose 0.48 pct to 41.99.
   
Randstad lifted 0.33 pct to 60.25.
   
SBM Offshore added 0.11 pct to 27.38 and Royal Dutch Shell put on 0.22 pct to 27.94.
   
Wessanen gained 0.42 pct to 12.03.
   
USG People was up 0.41 pct at 34.58.
   
Aegon was up 0.11 pct at 36.76 after the bank began its share buyback programme of 11.6 mln common shares. The programme will neutralize the dilution effect of the 2006 final dividend paid in shares. Aegon shareholders who elected a final dividend in shares are to receive one common share for every 52 common shares.
   
Boskalis advanced 0.11 pct to 26.36.

Lafite 1998:  06-07.. +91%  v  House Price Index:  06-07..  +7%
Latour 1996: 06-07.. +72%  v  Dow Jones:  06-07..  +14%
Liv-ex 100:   06-07.. +45%  v  Ftse 100:  06-07..  + 9%
CGT - 0% vs CGT- 40%

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FRANKFURT - market data at 9.28 am

Major indices
   
DAX - down 34.77 points, or 0.45 pct, at 7,662.61
MDAX - down 45.85 points, or 0.42 pct, at 10,862.51
TecDAX - down 4.80 points, or 0.54 pct, at 883.00
DAX futures - down 9.00 points, or 0.12 pct, at 7,680.00

Major decliners
   
Deutsche Bank, down 4.13 eur, or 3.57 pct, at 111.48 as shares trade ex dividend of 4.00 eur today.
   
Volkswagen, down 2.27 eur, or 2.01 pct, at 110.91
   
EON, down 1.05 eur, or 0.91 pct, at 114.97
   
Commerzbank, down 0.28 eur, or 0.77 pct, at 36.25
   
Deutsche Post, down 0.18 eur, or 0.76 pct, at 23.47   

Major advancers
   
Continental, up 0.86 eur, or 0.84 pct, at 103.29
   
Metro, up 0.32 eur, or 0.55 pct, at 58.19
   
Henkel, up 0.15 eur, or 0.13 pct, 113.80
   
Hypo Real Estate, up 0.05 eur, or 0.10 pct, at 49.55
   
Fresenius Medical Care, up 0.07, or 0.07 pct at 105.77

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MILAN - market data at 9.38 am

Main indices
   
Mibtel index at 33,499, down 0.31 pct
S&P/Mib index at 42,826, down 0.27 pct

Main S&P/Mib losers:
   
Fastweb down 1.42 pct at 42.25
   
Tenaris down 1.08 pct at 17.26, after a 2.45 pct rise yesterday
   
Mediobanca down 0.99 pct at 17.39
   
Fiat down 0.87 pct at 20.43

Main S&P/Mib gainers:
   
Mediolanum up 2.37 pct at 6.48, off an earlier high of 6.63 eur and after a nearly 3 pct loss yesterday. There is speculation that a foreign group could be interested in Mediolanum
   
Finmeccanica up 0.39 pct at 22.92. Earlier, Deutsche Bank repeated its 'hold' rating and raised its price target on the stock to 22.5 eur from 21.0
   
Alleanza up 0.32 pct at 10.01
   
BMPS up 0.21 pct at 5.13, as the bank is seen as one of the last companies that has to find a partner

Other stocks in the news:
   
Tod's up 1.18 pct at 64.90, after UBS raised its target on the stock to 80 eur, keeping a 'buy' recommendation
   
RCS Mediagroup up 0.04 pct at 4.047, after it was initiated with a 'buy' recommendation at Citigroup and a target of 4.70 eur

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