Barclays lifted by figures from US banks while eurozone hopes help investor sentiment
Banks helped push the market higher on hopes that a Spanish bailout could finally be implemented, reducing the cost of the country's borrowings, as well as optimism over Greece's tortuous budget talks with its international creditors. Better than expected results from Citigroup, the latest US bank to update the market, also helped sentiment.
Barclays climbed 4.65p to 236.85 as Ian Gordon at Investec issued a buy note and edged up his price target from 250p to 255p in the wake of the US figures. He said:
We have previously argued that the US banks reporting season should act as a catalyst to increase consensus expectations ahead of Barclays' third quarter [update] on 31 October. We were previously around 6% ahead; now, given positive investment bank read-across from JP Morgan/Citigroup, we believe we need to raise our own forecasts too. We move to £1.8bn adjusted profit before tax, leaving us around 10% ahead of consensus (£1.6bn) until other forecasts move up. For Barcap, we are now looking for £2.9bn revenues in the third quarter versus consensus of £2.7bn.
Lloyds Banking Group added 0.62p to 40.32p and Standard Chartered rose 34p to 1461.5p. But Royal Bank of Scotland fell 2.8p to 2681p following news late on Friday that Santander had pulled out of a deal to buy several hundred of the bank's branches.
Overall the FTSE 100 managed to hold on to its gains, finishing 12.29 points higher at 5805.61.
But mining groups fell back as Goldman Sachs cut its price targets and ratings for a number of companies in the sector to reflect falling commodity prices. These included Kazakhmys, down 25.5p at 690p, Rio Tinto, 48.5p lower at 2973.5p, and BHP Billiton, 8.5p lower at 1926.5p. Anglo American dropped 36p to 1788.5p as Goldman issued a sell rating following the industrial unrest at its platinum mines in South Africa.
Meanwhile Finland's Talvivaara Mining Company tumbled more than 7%, down 10.8p to 135.4p, after it cut its nickel production target for the second time this year. Numis said:
Third quarter production results are mixed but overall negative. The company continues to make progress in some areas and be challenged in others. However, persistent heavy rains continue to impact solution grades and Talvivaara now expects to miss downgraded guidance of 17,000 tonnes, as we forecast. Overall another disappointing update and we remain cautious. We maintain our 100p target price and sell recommendation.
Numis had expected production this year of 15,000. Until it cut its target to 17,000 in August the company had forecast output of 25,000 to 30,000 tonnes.
BT dipped 1.7p to 217p after analysts at Barclays moved from overweight to equal weight and cut their price target from 260p to 230p. The bank warned the poor economic environment was likely to have an effect on BT's corporate business, and its recent move into sports broadcasting as it won a package of Premier league matches would increase its cost base.
Kingfisher climbed 7.3p to 275.8p following a positive response to an analysts trip on Friday, while Kentz Corporation closed 15.7p higher at 424.7p as Oriel Securities repeated its buy recommendation on the engineering and construction group. On Friday UBS began coverage with a 500p target price, saying:
We believe Kentz offers attractive near-term earnings growth and is a low-risk play on increased capital spend, with the flexibility of the business model a buffer against the inherent cyclicality of the resources industry. Fears over mining capex and the performance of UK peers (both overdone, in our view) have left the shares at attractive levels.
Rentokil Initial rose 1.7p to 86.9p following weekend reports that a disposal of its troubled City Link parcels business could on the horizon. Mike Allen of Panmure Gordon said:
We would view this as good news for investors, especially if exit costs could be minimised. However, we think this scenario is being factored into the share price and maintain a neutral stance on the shares for now ahead of its third quarter trading update on 9 November.
In addition, if an exit for City Link can be achieved, then the takeover/break up scenario would also have greater creditability given the strategic fit with the rest of its portfolio.
But software and service group SDL slid 72p to 568p despite saying trading was broadly in line with expectations, although it also noted a legal dispute with a former shareholder of Trados, which SDL bought in 2005. It said the case was likely to come to court in 2013 but believed it was "completely without merit." Analyst George O'Connor at Panmure Gordon said:
Not for the first time a "broadly in line" [update] results in downgrades. We reduce our estimates once again, de-rate the shares and highlight that sentiment will remain 'iffy'. But nonetheless, this a good buying opportunity.
We reduce our 2012 earnings per share estimate from 38.2p to 35.2p (let's call it the 'warts and all' approach). We reduce our target price from 667p to 599p. Conscious that 'tech' company buying opportunities are often defined by the 'speed bump' moments, and that the mid–term investment case has not been derailed, we move from hold to buy.
Julian Yates at Investec moved from buy to hold:
We continue to see SDL as an appealing investment proposition due to its position of strength in multiple growth markets. However to justify a premium rating we believe the company will need to deliver on its growth potential within the technology business as well as the services business. We believe this will likely come through during 2013 as operational execution improves and we will look to revisit our target price and recommendation on evidence of this delivery. For now we move to hold with a target price of 670p.
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