Analysts engineer rises for IMI and Rolls-Royce

Market Report

ENGINEERING STOCKS were in focus last night, as both Rolls-Royceand IMI found themselves propelled up the blue-chip index by bullishbrokers.

Noting that the increasing price of oil has hit shares in theaerospace sector "as investors fear that airlines may once againseek to preserve cash", HSBC described Rolls-Royce as "wellinsulated relative to [its] peers". Its analysts upgraded thegroup's rating to "overweight", saying it was "set on visible long-term growth", and it climbed 10.5p to 620.5p.

There was an even bigger move for IMI after being named by RBC asits "top pick" in the sector, bumping it up 19p to 1,030p. Thebroker's analyst Andrew Carter said the group, which was promoted tothe top-tier index last December, has been "transformed" over thelast decade and that it was now "a high return, growth business thatis strongly cash generative".

Mr Carter also initiated coverage on a number of its peers,including Melrose and Cookson, and they added 5.9p to 332p and 4p to693.5p respectively after both being given an "outperform" rating.Smiths, meanwhile, shed 15p to 1,304p as the analyst predicted itwould underperform the sector over the next 12 months.

Overall, the FTSE 100 finished ahead for the sixth consecutivesession, rising 16.13 to 5,948.3, although market voices were stillbemoaning the low trading volumes seen recently.

One stock attracting attention, however, was Centrica as traderspointed to speculation doing the rounds that Qatar could take astake in the British Gas owner.

Noting that the utility revealed a contract with Qatargas lastmonth, Investec's Angelos Anastasiou said he believes the agreementcould "become a longer-term deal, extending to perhaps 10 yearsplus".

"The strategic alliance is also likely to be expanded," added theanalyst, who reiterated his "buy" advice, "and it would not surpriseus to see a direct investment in Centrica from the Qatari InvestmentAuthority or a similar body".

Centrica ended up 8.1p better off at 330.7p, helped as well bythe return of vague bid gossip with the Spanish group Iberdrola onceagain linked with a potential offer. Burberry has also seen reheatedtakeover speculation around it this week, and the luxury clothingbrand increased 23p to 1,185p.

The miners were generally enjoying a move higher, including BHPBilliton which was lifted 34.5p to 2,449p after revealing theproposed expansion of its Olympic Dam mine in Australia had reachedthe next stage of planning. Vedanta Resources, meanwhile, took thegold medal position, closing 76p stronger at 2,314p, following itshouse broker Morgan Stanley reiterating its "overweight" rating.

Tullow Oil spurted up 15p to 1,459p as it announced it had strucka deal with both Cnooc and Total for stakes in its Ugandan fields,which will net the company $2.9bn. Killik's Jonathan Jackson saidthe news came as "a big relief", adding that although "there arestill a number of tax-related issues to be resolved... a clear planfor the resolution of tax disputes on the various asset sales hasbeen agreed by the government of Uganda, the tax authorities andTullow."

NOT FOR the first time in recent months, the retailers were outof favour, prompted yesterday by Dixons issuing a profit warning.The electricals chain said a fall in consumer confidence,particularly in the UK and Ireland, has led it to expect its annualprofits to come in at the bottom of previous forecasts, and itplummeted 3.06p to 13.69p.

The repercussions were felt across the sector, including by itshigh street peer Kesa Electricals, which was driven back 7p to 124p.Also dropping was Halfords, down 15.9p to 359.3p, WH Smith, down13.3p to 445p, and Home Retail, down 8.5p to 192.9p.

Meanwhile on the top-tier index, Next declined 54p to 2,011pwhile Marks & Spencer took the wooden spoon, sliding 10.6p to340.7p. The high street institution was not helped by OrielSecurities reducing its profit expectations ahead of the group'strading update next week, while MF Global started its coverage onthe group with a "sell" rating in a large note on the sector.

The broker had nicer words for Wm Morrison, however, labellingthe supermarket a "conviction buy" and saying that its "step up ininvestment... in new space, formats, own brands and the internetshould underpin sales growth". The group subsequently gained 5.3p to273.8p, but Tesco - which had its rating upgraded to "buy" - edged0.7p lower to 385.75p.

Back on the mid-tier index, Lamprell shifted up 15.5p to 338p asit announced a $41m contract with Weatherfood DrillingInternational, while Evolution Securities decided to increase itsprice target to 450p from 400p.

IT WAS plain sailing for YCO, which provides a variety ofservices to owners of large yachts, on the choppy waves of theAlternative Investment Market. The group predicted its full-yearprofit would reach 900,000, up from 31,000 the year before, and itsurged forwards 1.38p to 12.88p.

FTSE 100 RISERS

British American Tobacco 2,521p (up 59p, 2.4 per cent) Cigarettegroup enjoys a second day of rises following its US legal victory onMonday.

BT 184.7p (up 2.6p, 1.43 per cent) Announces it has made itslatest payment to its pension-deficit programme nine months early.

Man Group 247.3p (up 1.1p, 0.45 per cent) Hedge-fund manageradvances despite both Deutsche Bank and Citigroup reducing its pricetarget.

FTSE 250 RISERS

CPP 167.1p (up 17.1p, 11.4 per cent) Credit-card insurer reboundsafter Tuesday's falls in which it lost more than 40 per cent of itsshare price.

Bellway 712p (up 30p, 4.4 per cent) House builder says itsprofits for the first six months rose by more than 25 per cent.

Hiscox 383p (up 7.6p, 2.2 per cent) Insurer reveals it expectsthe earthquake and tsunami in Japan to cost it around $100m (62m).

FTSE 100 FALLERS

Randgold Resources 4,567p (down 89p, 1.91 per cent) Yellow-metalminer retreats as Socit Gnrale reduces its advice to 'sell'.

Wolseley 2,115p (down 39p, 1.81 per cent) Plumbers' merchantdrops even though Citigroup raises its target price to 3,050p from3,000p.

BP 458.45p (down 8.1p, 1.74 per cent) Oil giant still falling;has now lost more than 5 per cent of its share price in the pastthree sessions.

FTSE 250 FALLERS

Domino's 427.2p (down 18.8p, 4.22 per cent) Pizza deliverycompany reveals its sales growth has slowed, harmed by a large dropin Ireland.

Dunelm 410p (down 10p, 2.38 per cent) Homewares retailer managesto lose all of the gains it made in Tuesday's session.

Persimmon 453p (down 8.4p, 1.82 per cent) Tracks back despite UBSincreasing its target price on the house builder to 530p from 473p.