Last updated: January 30, 2013 11:25 pm

WPP rises to 13-year high on ad budgets

WPP hit its highest level in nearly 13 years on Wednesday as signs of improving trade bolstered cash return hopes.

The advertising agency added 1.3 per cent to 990p, taking its three-month gain to 25 per cent. That came after GfK, a competitor to its Kantar market research arm, said client demand had been good in the fourth quarter with indications that growth in northern Europe was picking up.

A Jefferies upgrade also helped lift WPP, with the broker setting a £11.40 price target. Its team was encouraged by comments on brand investment from key WPP clients such as Unilever and Procter & Gamble.

“An analysis of WPP’s largest clients and their 2013 ad budgets looks encouraging and with expectations low, we see upside risk,” it said. “Additionally, we see cash returns rather than acquisitions increasingly the focus for 2013 following 2012’s transformational M&A.”

The wider market stalled, with the FTSE 100 breaking a five-day winning streak. The index lost 0.3 per cent, or 16.08 points, to 6,323.11.

Petrofac led the oil companies lower, down 7 per cent to £16.15, after an overnight profit warning from Italy’s Saipem. Its problems included falling activity in high-margin contracts signed before 2009, as well as delays and increased competition.

“Petrofac is a key, lower-cost competitor of Saipem’s in the Gulf Cooperation Council onshore market, and was well documented to have gone directly head-to-head with Saipem on a number of contracts won in 2009-10,” said Deutsche Bank.

Wood Group fell 2.2 per cent to 805.5p and Amec was off 2.1 per cent to £10.76, but Hunting edged 0.2 per cent higher to 832p. The first two had relatively little exposure to the kind of lump-sum contracts causing Sapiem trouble, while the last was more reliant on US manufacturing where there was no overlap, Deutsche argued.

Aggreko dropped 5.2 per cent to £16.12 amid rumours that it may have to cut earnings guidance further ahead of full-year results expected in March.

Antofagasta dropped 8.3 per cent to £11.69 after the copper miner warned that costs would be substantially higher than expected. Merrill Lynch cut Antofagasta off its “buy” list.

Polymetal , the gold miner, fell 2 per cent to £10.88 after flagging up project delays and denying it was in talks to merge with Polyus Gold , which rose 2.3 per cent to 225.5p.

Iron ore maker Ferrexpo lost 5.4 per cent to 257p after saying it planned to sell its second eurobond in two years, which required it to release nine-month results showing net profit down 57 per cent.

Renishaw , the precision instrument maker, dropped 5.1 per cent to £18.60 after saying second-half growth rates would moderate and that demand had cooled from the Chinese consumer electronics market.

Among the gainers, Bunzl rose 2.5 per cent to £11.34 on “buy” advice from Numis Securities.

Graphics chip designerImagination Technologies jumped 12.8 per cent to 497.9p after Morgan Stanley upgraded to “overweight”.

“In the smartphone market, the focus is shifting from developed markets to emerging markets. We believe Imagination is well positioned to take advantage of this,” said the broker.

Arm Holdings rose 0.5 per cent to 873.5p on upbeat guidance from Amazon and China’s ZTE, the fourth-biggest handset maker.

Software maker Sage found support, up 2 per cent to 331.6p, amid continued talk that financial buyers had looked at taking the business private.

Phoenix Group added 6.6 per cent to 630p on news it had removed a dividend cap following a successful bank debt re-terming with better than expected terms.

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