Strong day for London but not Imperial Tobacco

On a strong day for the London market, Imperial Tobacco lagged behind. Shares in the maker of Lambert & Butler cigarettes eased 0.2 per cent to £23.65 as investors switched into rival British American Tobacco, up 1.8 per cent to £17.73.

That move was prompted by Citigroup, which criticised Imperial’s decision, announced last Friday, to launch a bid for control of Logista. Imperial owns 60 per cent of Logista as a result of its £8.8bn acquisition of Franco-Spanish tobacco group Altadis.

“First, it will mean the rights issue required to purchase Altadis will be £200m bigger and second, at least for now, about 8 per cent of Imperial’s earnings will be derived from logistics, which we regard as inferior quality business to tobacco,” analyst Adam Spielman said.

Mr Spielman said there were other reasons why investors should favour BAT over Imperial, including valuation, increased competition from Philip Morris International and the fact that BAT is the price leader in most of its main markets.

In the wider market, leading shares bounced back from Monday’s losses as a larger than expected increase in US durable goods orders calmed recession fears.

With investors nevertheless still betting the US Federal Reserve would cut interest rates again today, the FTSE 100 closed 96.3 points, or 1.7 per cent, higher at 5,885.2. Elsewhere, the FTSE 250 added 264.9 points, or 2.8 per cent, to 9,905.4.

Mining stocks dominated the blue chip leaderboard.

Xstrata advanced 5.9 per cent to £37.19 on talk that Vale of Brazil had secured funding of about £25bn for a potential takeover bid. The rumour in the market was that Vale would now press ahead with an offer of £40 a share, in cash and stock.

Meanwhile, Antofagasta added 6.7 per cent to 669½p, while Anglo American climbed 5.8 per cent to £26.08 and Kazakhmys rose 4.7 per cent to £11.93.

Carnival, the cruise ship operator, eased 0.8 per cent to £20.84 after lowering first quarter earnings guidance because of higher fuel prices and lower spending on board some of its liners.

Alliance & Leicester, off 3.5 per cent at 700p, underperformed after the mortgage lender warned losses on complex financial instruments had trebled to £185m. MF Global said there was a chance A&L would now be forced to cut its dividend.

Traders also pointed out that A&L was the most expensive stock in the sector, trading at 1.9 times book value. In contrast Bradford & Bingley, 4.2 per cent stronger at 260p, trades on 1.1 times book value.

Kingfisher added 4.1 per cent to 143p ahead of presentations by Ian Cheshire, the new chief executive, to store managers and investors. “We believe the plan for B&Q will then [after the presentations] be a lot clearer, for better or worse”, Deutsche Bank said in a note to clients.

In the retail sector, J Sainsbury added 4.2 per cent to 390¾p as investors reacted to news that financier Robert Tchenguiz had increased his holding in pub company Mitchells & Butlers, up 5 per cent to 401p, to just over 22 per cent. Traders said the move eased fears that Mr Tchenguiz would be forced to sell his 10 per cent interest in Sainsbury.

British Airways added 5.1 per cent to 329p as short sellers closed positions ahead of Friday’s third quarter trading statement. The talk in the market was that an airline based in the Middle East could announce a stake alongside the update.

Among mid-caps, Debenhams, the department stores group, climbed 7.1 per cent to 71¾p after Milestone Resources declared a raised holding of 9.1 per cent. Milestone is the investment vehicle of Micky Jagtiani, the chief executive of Dubai-based retailer Landmark.

Mapeley, the property outsourcing company, firmed 0.3 per cent to £13.64 on rumours of a management buy-out. Sector watchers, were sceptical, noting that by April Mapeley (market value of £412m) must refinance £260m of short-term debt.

In addition, any deal would require the backing of hedge fund Fortress Investments, which controls almost 50 per cent of the company. As Mapeley shares traded as high as £30 as recently as June, traders were not convinced it would sell out now.

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