Last updated: January 11, 2013 8:20 pm

IAG takes off as FTSE holds steady

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Shares in the parent company of British Airways topped the FTSE 100 after a broker upgrade, while sustained demand for financial stocks helped the London index hold its best levels since May 2008.

Analysts at UBS raised the rating on International Consolidated Airlines Group from “neutral” to “buy”, calling the stock a “play on the global economic recovery.”

The upgrade was made in part on valuation grounds and also came after the threat of strikes at IAG’s Spanish airline, Iberia, was lifted with the agreement of a five-year labour deal with unions.

In a note to the broker’s clients, Jarrod Castle, UBS analyst, wrote: “Despite its share price being up over 25 per cent in 2012, IAG was the worst performing European airline share under our coverage . . . We think that IAG could be the laggard most likely to outperform in 2013.”

IAG rose 5.4 per cent to 207.6p, the best showing on the main index by a clear margin.

Overall, the FTSE 100 rose 20.07 points yesterday to 6,121.58, a gain of 0.3 per cent. That took its rally over the week to 0.5 per cent.

Since the start of the calendar year, the benchmark has advanced 3.8 per cent, its best performance over the first full trading week of any year since 1999.

Sustained demand for financial stocks underpinned the wider market. The sector’s rally began on Monday after news that the fresh international regulatory requirements outlined by the Basel Committee on Banking Supervision would be significantly less onerous that feared.

Barclays led the sector yesterday, rising 1.7 per cent over the session and 6.6 per cent over the week to 299.7p. Lloyds Banking Group , which made the best single gain on the FTSE 100 in 2012, rose 1.4 per cent yesterday to 54p, a rise over the week of 5.9 per cent.

Insurance stocks were also prominent on the
leaderboard after wide-ranging and upbeat comment on the sector from Citigroup.

The broker lifted its rating on Aviva from “neutral” to “buy”, praising the “strong delivery” of its restructuring plan and lifted its price target on the stock from 346p to 479p.

Paul L Bradley, analyst, also wrote in a note to Citi’s clients: “We think Aviva is one of the most attractive opportunities in the sector this year. Despite recent gains, it trades at a substantial discount to UK peers and . . . with greater confidence that the group will deliver on its restructuring plan, we no longer classify the stock as ‘high risk’.”

The shares rose 3.3 per cent to 380.1p and second place on the leaderboard.

Citi lifted its target on Prudential from 972p to £10.65. “Its strong Asian growth profile has supported good performance for the stock, which we think will persist throughout 2013,” it said. Prudential rose 0.6 per cent to 921½p.

Citi’s note identified the wider sector’s limited exposure to the eurozone as an important part of its appeal, pointing out: “We can see that the UK insurers, with the exception of Aviva due to its Italian and Spanish operations, are at the lower end of [exposure], which we believe has been a key defensive strength over the past five years.”

Legal & General ticked 0.2 per cent higher to 151.1p after Citi lifted its price target from 132p to 162p. Standard Life rose 0.3 per cent to 353p after its target price went up from 222p to 350p.

Tullow Oil was the biggest single faller after its production update received a chilly reception in dealing rooms. The explorer’s production forecasts for 2013 missed analyst estimates. The stock lost 3.2 per cent to £11.86.

The rally in the wider resource sector also cooled, limiting the FTSE 100’s wider gains, after news of rising inflation in China took the edge off recent stronger economic data and prompted some profit-taking.

BHP Billiton led the sector lower, falling 2.7 per cent to £20.75. Kazakhmys was 2.1 per cent lower at 808½p.

The FTSE 250 was 0.5 per cent higher at 12,797.83, a rise of 67.05 points led by mid-cap financials and property developers.

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