Wm Morrison leads FTSE advance

Wm Morrison shares had their best session for 16 months on Wednesday on hopes that 2006 would show a turnaround at the fourth largest supermarket.

Morrison shares, which underperformed its blue-chip peers by nearly 20 per cent last year, ,jumped 6.9 per cent to 210½p after UBS upped its rating from “neutral” to “buy”, citing evidence of improving sales momentum.

“We believe the market is underestimating the company’s sales potential,” analyst Lucy Sharma wrote in a research note. “Recent evidence suggests improving sales momentum for Morrison, which should accelerate through 2006.”

Also upgrading the company to a “buy” was Oriel Securities, which said it was “increasingly convinced that Morrison has turned the corner”. “Our store visits find the estate in the best shape we have seen it in since the merger with Safeway,” analyst Jonathan Pritchard wrote.

Cazenove said Morrison could benefit from the struggling performance at Wal-Mart-owned Asda, which missed its sales and profits targets for the third successive quarter in the three months to December.

Suggesting that Wal-Mart had not been able to translate its scale advantage to the UK, Cazenove wrote that “we expect Asda to remain a soft source of market share for Tesco and Morrison throughout 2006.” Shares in Tesco, the market leader, ended flat at 324½p.

In the wider market, the FTSE 100 rose 14.7 points, or 0.3 per cent, to 5,872.4, while the mid-cap FTSE 250 added 14 points, or 0.1 per cent, to 9,472.9. Volume was healthy with 3.4bn shares changing hands.

Anglo American rose 2.7 per cent to £21.99 after the miner raised the size of its capital return to shareholders and announced plans to float its Mondi paper making operation in London.

Rexam, the world’s biggest beverage can maker, climbed 4.5 per cent to 525p on solid full-year results. The market was also relieved it did not warn on cost pressures caused by soaring aluminium prices.

Speculation that 3i Group had rebuffed a bid approach from a European rival helped the listed private equity company rise 6.1 per cent to 970½p.

BP, the oil giant, fell 1.8 per cent to 651p after the stock traded without further rights to its latest dividend payment. Miner Rio Tinto, down 1.8 per cent to £28.75, also went ex-dividend.

Elsewhere in the mining sector, Kazakhmys dropped 2.3 per cent to 903p amid speculation that a large fund had cut its holding in copper mining stocks. Traders said the fund manager had described recent speculative activity in the sector as excessive.

Reuters fell 2 per cent to 451¼p in cautious trading ahead of full-year earnings figures today.

A negative broker note from Merrill Lynch pulled Alliance & Leicester 0.8 per cent lower to £11.33½. The broker reiterated its “sell” rating ahead of the bank’s full-year results on February 27. It argued A&L’s results would be less positively affected by a pick up in the mortgage market than the three UK banks that have reported so far this year.

Talk of an imminent management buyout sent Body Shop 10.5 per cent higher to 247p. The company denied the rumour, but this failed to halt the stock’s progress as investors turned their attention to the possibility of a bid from outside the company instead.

RHM lost 1.8 per cent to 281¼p amid rumours that the maker of Hovis bread and Mr Kipling cakes was poised to issue a profit warning. The company, which was spun-out of private equity group Doughty Hanson last year, denied this. Also unsettling the stock was talk that Doughty Hanson was looking to sell its remaining stake after the end of its lock-up period. Sceptics pointed out it had been able to do this since last month and said the whole thing had the look of a bear raid.

Henderson Group, the fund manager seen as a front runner to buy its UK rival Gartmore, added 6.6 per cent to 84½p after UBS upgraded its price target on the stock from 73p to 100p. UBS said the move reflected strong equity markets and fund flows.

Housebuilder George Wimpey rose 1.7 per cent to 560½p after Numis raised it price target on the stock from 509p to 566p. The broker pointed out that Wimpey, whose shares have risen over 30 per cent since November, was one of the cheapest housebuilders even though it has a successful US business.

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