UK/Euro Financial Market Daily Morning Briefing 27-02-2006

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London

London shares open higher buoyed by earnings reports, M&A talk in energy

Leading shares opened higher this morning as investors were encouraged by earnings news from several companies while continued consolidation within the international energy sector also helped underpin sentiment, dealers said.
   
At 9.20 am, the FTSE 100 was trading 26.1 points higher at 5,886.6 while the broader indices were also registering gains.
   
Volume was heavy with 539 mln shares traded in 33,339 deals.
   
On Wall Street, US stocks had a mixed session on Friday with the DJIA closing down 7.37 points at 11,061.85.
   
And in Asian trade, Japanese stocks closed higher overnight with the Nikkei up 91.04 points at 16,192.95, meanwhile Hong Kong's Hang Seng ended the morning session up 106.50 points at 15,962.55.
   
Oil prices fell on profit-taking overnight amid strong crude and gasoline inventories in the US.
   
At 0445 GMT the main US contract for light sweet crude for delivery in April was down 67 cents at 62.24 usd from its close of 62.91 in US trade on Friday.
   
In London, shares in GUS rose in early deals following a report the group is looking to split its Argos and Experian businesses, prompting UBS to increase its target price to 1,225 pence from 1,170 pence.
   
UBS said that consensus forecasts see the impact of acquisitions on Experian
North America (ENA) for 2005-2006 falling in the second half after 32 pct growth
in the first.
   
However, the broker said assuming only a 10 pct ENA underlying profit growth
in the second half, this gives a 12 mln stg upgrade; and therefore increases its
2005-2006 group forecasts by 15 mln stg to 845 mln.
   
GUS shares rose 28-1/2 to 1129-1/2.
   
Utilities were powering ahead on the back of renewed sector consolidation after news of the planned merger between Suez and Gaz de France, sponsored by the French government.

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On Saturday, Enel officially released in a statement its interest for Suez's electricity unit Electrabel. Within less than a hour, the French government announced plans to merge Suez and Gaz de France.
   
In reaction, Scottish & Southern Energy rose 30-1/2 pence to 1186, with Scottish Power -- a possible merger candidate with its Scottish rival -- rallied 7-1/2 to 593.
   
Elsewhere National Grid gained 8-1/2 to 621-1/2 as it announced the agreed cquisition of US utility KeySpan for 7.3 bln usd in cash, or 42 usd a share, plus the assumption of 4.5 bln usd in debt.
   
On the earnings front, property group Hammerson rose 27-1/2 pence to 1129 after saying its adjusted pretax profit climbed 7.5 pct in 2005 and that it anticipates good growth in rental income during the next three years.
   
Pretax profit, excluding gains on investment properties and changes in the  value of interest rate swaps, increased to 89.4 mln stg from a restated 83.2 mln stg. Pretax profit including these items jumped 69 pct to 698.6 mln stg.
   
Pearson was another early riser, up 12-1/2 pence to 718, after posting a 23 pct rise in full-year profit, helped by a strong educational publishing market and a recovery in advertising revenues at the Financial Times newspaper.
   
The owner of the Financial Times and Penguin books said pretax profit for the year to Dec 31 rose to 422 mln stg from 350 mln a year earlier.
   
"We view today's results as encouraging," Numis Securities said in a  research note, which retained its hold recommendation on Pearson.
   
Numis noted Pearson had published detailed guidance for 2006, including 3-5
pct growth in its educational publishing business.
   
Old Mutual rose 2-1/4 to 198-1/4 after brokers welcomed a higher-than- expected increase in annual profit.
   
Merrill Lynch said adjusted operating EPS of 18.2 pence beat its estimates of 18.0 pence, while disclosed EV including goodwill of 175.6 pence per share was 26 pct higher than 2004, and 6 pct ahead of its forecasts.
   
The broker reiterated its 'neutral' stance on the stock, saying the numbers were slightly ahead of its forecasts but adding it does not anticipate changes to its earnings estimates.
   
Old Mutual unveiled IFRS adjusted operating profit for the year to end December of 1.24 bln stg, compared with 954 mln stg the previous year, driven by a strong performance from Nedbank.

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Among financials, shares in Royal Bank of Scotland were higher in early deals following comments from Dresdner Kleinwort Wasserstein, which continued its argument for a share buy-back from the bank.
   
The German-owned broker repeated its 'buy' recommendation and 2,200 pence
target, arguing that it believes a share buy-back programme would help win over
the doubters who fear the historically acquisitive bank may be more interested in launching further takeovers.
   
"We are convinced that the only thing wrong with RBS is its share price and we are convinced that you (chief executive Sir Fred Goodwin) are the best person to lead the bank into the next decade," DKW said.
   
RBS rose 23 pence to 1183.
   
On the downside, Vodafone fell over 5 pct, or 6-1/4 pence to 110-3/4, after the world's largest mobile phone carrier said it would slash the book value of its core business by as much as 28 bln stg due to intensifying competition.
   
The increasingly bitter fight for new customers in western Europe, where penetration rates are nearing 100 pct, would also produce much lower underlying
revenue growth for the financial year ending in March 2007, it warned.
  
Peer Cable & Wireless also fell, off 2 at 107-1/2 after unveiling plans for  hundreds more job losses in an attempt to turn around the struggling UK telecoms group, the Sunday Times reported.
   
Citing an internal memo seen by the newspaper, new UK chairman John Pluthero
warned staff they are in for a rough ride.
     
Mortgage lender Alliance & Leicester eased 1-1/2 pence to 1137 after announcing a small rise in profits for 2005, boosted by lower costs and rising business volumes.
   
A&L, the UK's eighth-biggest bank, reported a core operating profit of 548  mln stg for the year, up from 540 mln in 2004. Analysts had predicted profits  would be flat at around 540 mln stg.   
   
Returning to an earnings theme, UK housebuilder Persimmon fell 11 pence to 1417 as dealers seemed unimpressed with an upbeat view of the firm's prospects for 2006 after it reported record annual profits.
   
In the first eight weeks of the year, the group said it "detected" an  increase in homebuyers confidence.

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In reaction to Persimmon's numbers, Bridgewell Securities said that the main
driver of results was a 5 pct improvement in the average sales price which was supported by a 2 pct rise in volume and a relatively flat operating margin.
   
On the integration of Westbury, the broker noted that Persimmon appears to  be making good progress, adding that the group said all sites have been  re branded, that 8 of 10 Westbury offices have been closed and that its early  work on build cost savings are producing promising results.
   
On the second line, Pilkington rose 3-1/2 pence to 161-1/2 after the announcement of an agreed 165 pence a share offer from Nippon Sheet Glass.
   
Nippon Sheet Glass said today it was pressing ahead with the 1.8 bln stg all-cash acquisition of the 80 pct shareholding in Pilkington it did not already own.
   
The deal, which values Pilkington at a total of 2.2 bln stg, would be an improvement on the indicative cash offer worth 158 pence a share made in December and an initial offer worth 150 pence, both of which were rejected.
   
The international provider of catering and related outsourcing services Bunzl was another riser, up 12 to 640 after reporting a 16 pct rise in full year pretax profit, and said it expects to grow organically in the coming year with help from recent acquisitions.

Diary of Events

For a list of key UK financial and corporate events today, click here

US Summary

For a summary of U.S. stocks at Friday's close of trade, click here

Paris

PARIS - Market data at 08.51 GMT

   
Major indices:
   
CAC-40 up 5.32 points or 0.10 pct at 5,079.27
SBF-80 up 5.86 points or 0.10 pct at 5,687.86
SBF-120 up 3.44 points or 0.09 pct at 3,671.50

Volume: 864 mln eur
20 CAC-40 stocks up
16 CAC-40 stocks down
4 CAC-40 stocks unchanged
   

Major gainers:
   
Gaz de France, up 0.70 eur or 2.35 pct at 30.50, after its agreement to
acquire Suez.
   
Electricite de France, up 0.54 eur or 1.21 pct at 44.99, amid merger
developments in the broader European energy sector.
  
STMicroelectonics, up 0.18 eur or 1.25 pct at 14.58

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Major losers:
   
Suez, down 1.03 eur or 3.04 pct at 32.86, after its agreement to be
acquired by Gaz de France.
   
Air Liquide, down 2.50 eur or 1.44 pct at 170.80. Its rise in full year
recurring operating profit fell short of expectations.
   
France Telecom, down 0.18 eur or 1.13 pct at 18.45.
   
Schneider Electric, down 0.85 eur or 0.99 pct at 85.15. It announced the
sale of its Mafelec unit in a management buyout.

Frankfurt

FRANKFURT - Market data at 08.53 GMT

Major indices:   

DAX 30 - 5,882.05, up 11.26 points or 0.19 pct
MDAX - 8,404.47, up 27.88 points or 0.33 pct
TecDAX - 751.53, up 8.37 points or 1.13 pct
DAX future - 5,890.00, up 14.50 points or 0.25 pct

   
Major gainers:
   
RWE, up 1.05 eur or 1.43 pct at 74.30, amid a fresh bout of M&A news in the
European utilities sector as French utility giant Suez and state-owned Gaz de
France spent Sunday hammering out the details of a merger that would fend off a
potential takeover bid from Italian group Enel.
   
Schering, up 0.59 eur or 0.98 pct at 60.55
   
Continental AG, up 0.82 eur or 0.94 pct at 88.52, as Citigroup hiked its
price target on the stock to 100 eur from 90 and reiterated its 'buy' rating,
according to dealers.
   
Metro, up 0.36 eur or 0.82 pct at 44.00
   
Munich Re, up 0.77 eur or 0.67 pct at 115.09

   
Major losers

Deutsche Telekom, down 0.19 eur or 1.42 pct at 13.20, as Vodafone said it
would slash the book value of its businesses by up to 28 bln stg and warned that
the increasingly bitter fight for new customers in western Europe would produce
much lower underlying revenue growth for the financial year ending in March
2007. Separately, Credit Suisse today cut its price target on the issue to 12.5
eur from 13.5 and reiterated its 'underperform' rating.
   
Deutsche Post, down 0.22 eur or 0.99 pct at 22.06
   
Deutsche Bank, down 0.66 eur or 0.70 pct at 93.96
   
Deutsche Lufthansa, down 0.09 eur or 0.64 pct at 13.88, as its chief
executive Wolfgang Mayrhuber over the weekend told the Frankfurter Allgemeine
Zeitung that the flag carrier is seeking acquisitions to strengthen its
competitiveness.
   
Deutsche Boerse, down 0.66 eur or 0.62 pct at 105.50  

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