Last updated: December 7, 2012 8:37 pm

FTSE 100 creeps higher on low volumes

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Regulatory optimism and hopes of improved cash returns helped push Centrica to its highest since September on Friday.

UK utilities were benefiting from a switch from their continental peers after this week’s profit warning from GDF Suez, analysts said. The French group blamed domestic pricing controls and overcapacity, as well as weaker demand in central Europe.

“In contrast we see the UK generation market improving in an investible timeframe,” said UBS, which forecast spare network capacity to “tighten significantly” by 2015.

“Additionally, UK political interventions remain positive, unlike the majority on the continent, as the UK looks to attract circa £110bn new investment by 2020,” the broker said.

Centrica this week held investor and broker meetings that emphasised its balance sheet strength and alternative options if the economics of UK nuclear investment proved unattractive.

Options would include redeploying capital in the faster-growth North American market and improving shareholder returns, said SocGen. It estimated that the British Gas owner had scope to raise about £1bn for acquisitions or returns.

“Centrica has by far the strongest balance sheet of all the major integrated European utilities,” said UBS.

Centrica rose 1.6 per cent to 337p.

The wider market crept higher on low volume for a third straight day, leaving the FTSE 100 up 12.98 points, or 0.2 per cent, to 5,914.40. For the week the index was up 0.8 per cent.

Diageo put on 1.3 per cent to £18.79 on an upgrade to “buy” from Santander.

The bank told clients: “Management’s robust focus on margin delivery and the recent entry into high-potential markets in Turkey, and now India, give us greater comfort that Diageo is making the cultural and structural changes needed to keep pace with competitors, especially the global brewers, which we believe have shown more ambition on growth and profitability in recent years and have received premium multiples as a result.”

Among the miners, Xstrata slid 0.6 per cent to £10.35 and Glencore International was down 0.1 per cent to 345.2p amid worries their merger might face another regulatory hurdle.

Eskom, South Africa’s national electricity utility, voiced concerns that Glencore’s purchase of Xstrata would put its supplies of coal at risk and asked the national regulator to investigate the combination.

Liberum Securities played down concerns that the deal could be blocked, arguing that the goverment would be “looking for assurances that no drastic change will come of the merger”.

But other brokers worried South Africa could be more obstructive given foreign investment in its mining industry has fallen sharply.

Marks and Spencer lost 1.1 per cent to 393.6p after Goldman Sachs downgraded M&S to “sell”.

M&S’s strategy to focus on its store chain rather than online operations over the past six years had put it on track for declining returns on investment over the medium term, said Goldman.

Fashion retailer Supergroup rose 2.6 per cent to 617p ahead of interim results due on Wednesday. An earlier trading statement meant the results were unlikely to surprise, analysts said.

Berkeley Group , the housebuilder, gained 4.7 per cent to £17.28 after its earnings beat forecasts.

A downgrade to “neutral” from Citigroup sent engineer Invensys sliding 1.6 per cent to 322.8p.

A break-up of Invensys looked possible following the planned sale of its rail division but the positive reaction meant the shares were already trading in line with peers, Citi said.

“While a take-out valuation could be closer to £4 per share, any further activity here is unlikely before the second quarter of 2013,” it said.

Man Group lost 3.7 per cent to 73.7p, with the continued poor performance of its AHL trend-driven fund leading HSBC to turn cautious.

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