Market Report: Morrisons finally rewards patient shareholders
By Andrew Dewson
Published: 06 March 2007
It took a long time but the merger between Safeway and William Morrison, to form Morrison Supermarkets, has finally rewarded patient shareholders. However, the broker JP Morgan believes that despite a strong performance in the last two years, it will have to do something with its property portfolio if it is to avoid a bid. The US investment bank thinks the food retailer could announce the sale and leaseback of its property portfolio along with results on 15 March.
The broker told clients: "To fend off a potential private equity bid, we think Morrison must make every effort to raise the share price on 15 March. We see an announcement on property as being central to this." JP Morgan reiterated its "overweight" stance on the shares and its 360p price target, although the shares followed the market lower and shed 3p worse to 295.25p.
The insurer Royal & SunAlliance topped the blue-chip leaderboard after completing the sale of its US operations for a potential total of $309m, a deal first confirmed in September. Brokers Merrill Lynch and Numis Securities upgraded the shares before Thursday's results and there is some talk that a big return of capital could be on the way. The shares climbed 5.75p to 154p.
Brokers are trying to assess the impact of BSkyB's spat with Virgin Media, after the collapse of talks last week that has resulted in Sky's basic channels being removed from Virgin Media's platform. Lehman Brothers trimmed its price target for BSkyB by 10p to 600p, telling clients it has cut forecasts for the next three years on the back of the dispute. The stock closed 5p worse at 547p.
After a grim start to the week in London after more weakness overnight in Asian markets, the blue-chip index managed a decent rally in the afternoon. Having been down 126.6 at the low point of the session, the FTSE 100 rallied and closed 57.5 worse at 6,058.7.
A profits warning from the American chip giant AMD, which said it would miss first-quarter revenue targets, was enough to send investors in UK chip stocks running for cover. ARM Holdings led the way with a 3.5p fall to 128.25p, while CSR shed 26.5p to 685.5p. Wolfson Microelectronics, listed in the smaller companies after a dreadful second half to 2006, was also out of favour down 9.5p to 290.5p.
The spread better IG Group was one of the few mid-cap stocks to end the session in positive territory after Merrill Lynch highlighted its improved prospects during volatile trading periods. The US investment bank upgraded the shares from "neutral" to "buy", noting that the global sell-off in May last year led to the company having its best ever month. Merrill upped its target for the shares to 310p, sending the stock 5p firmer to 265p. Meanwhile, two blue-chip stocks that should be benefiting from the volatility in the markets failed to attract much buying support. ICAP fell 2.5p to 466p and Man Group shed 7p to 528.75p.
German broker Deutsche Bank upgraded the bus and rail operator Arriva to "buy" from "hold" before Thursday's results, but wider market issues meant the upgrade had little impact on the shares, which closed 6.5p worse at 701p. The broker told clients that there is a major pricing anomaly between the value the market is giving Arriva's European operations in comparison with the rest of the market. It upped its price target to 799p.
It was a quiet day in the small caps, with most investors content to sit out the session in light of more weakness in the large caps. Toluna, an AIM-listed provider of market research software, tanked 26p to 196.5p. Market makers said that house broker Cenkos Securities was calling the price lower after retail investors decided to cash in.
Star performer among the small caps was Careforce Group, an AIM-listed provider of domiciliary care services, after agreeing to a 160p-per-share offer from Mears Group. The shares surged 37p to 148.5p, still some way short of the offer price, indicating there are some investors who still see an element of risk in the deal. Mears fell 5p to 346.5p as the deal brought a mixed reaction from brokers, with Altium Securities and Dresdner Kleinwort downgrading their stance on the shares despite the company also reporting a decent set of full-year numbers.
Small-cap traders will be on the lookout for Broca, which comes to the market today. The company, which supplies secure telecoms protocol, is being spun out of the AIM-listed 2Ergo and has been placed with investors at 0.52p, giving the company an expected market value of just over £19m.
