Market report: Tuesday close

By MICKEY CLARK FOR MAILONLINE
Updated:

 

CHAMPAGNE corks were popping at FirstGroup, up 13¾p at 375¾p, after it won the Greater Western and Thameslink/GN rail franchises. They begin next April and run for a decade, bringing in revenue of £1bn a year.

FirstGroup had been up against stiff opposition in the shape of National Express, down 9½p at 897p, and Stagecoach, 2p lower at 112½p, which both failed despite intense speculation to the contrary.

Shares of another buses and trains operator, GoAhead, dropped 18p to 1582p on the back of its latest trading update ahead of interim results on 31 December. It warned rising fuel and wage costs continue to take a toll on its bus operations, bringing margins under pressure. Management was trying to tackle the problem, but this would take time, it warned.

That was not good enough for broker Panmure Gordon, which downgraded from buy to hold and urged clients to switch into FirstGroup, where it has repeated its buy rating and 390p target.

The market generally nosed ahead, but there was no real enthusiasm from investors. The FTSE 100 index rose 5.5 to 5507, Wall Street made a hesitant start this afternoon ahead of tonight's expected rise in US interest rates.

Ratcatcher and parcels courier Rentokil Initial lost 3¾p to 162¾p after US broker Morgan Stanley placed 14m shares worth £23m with various institutions at 162p. Rentokil recently rejected an offer by former ITV boss Sir Gerry Robinson to take control of the ailing services group in return for a £50m fee. Argos and Homebase retailer GUS climbed 14½p to 983½p as it completed the demerger of its luxury goods subsidiary Burberry and the accompanying consolidation of its own shares. Burberry fell 9p to 417p.

Retailer Halfords stood out with a rise of 7¾p to 325p after it emerged Japanese company Autobacs Seven had acquired 11.4m shares, or 5% of the company, from venture capitalist CVC Capital. Retail analyst Richard Ratner at broker Seymour Pierce believes the Japanese will launch a full bid within 12 months at between 350p and 360p. He continues to rate Halfords outperform.

Online poker operator Party-Gaming fell 7½p to 128p, making it one of the heaviest fallers among the top 100, after investment house Lehman downgraded its shares.

Lancashire Holdings began trading on a when-issued basis after a placing of 182m shares by broker Merrill Lynch at 284p. That raised $910m (£519m) which the company wants to use to establish an insurance and re-insurance business, to take advantage of the large losses incurred by the industry during 2004 and 2005. The price touched a peak of 325p before settling at 319p.

It was also the first day of trading for oil and gas explorer Serica Energy following a placing of 67.3m shares by JPMorgan Cazenove at 107p. They traded at 115½p. Lombard Medical Technology also made its debut, after a placing of 16.4m shares at 159p by Code Securities. The price hit 163½p before settling at 163½p.

AIM-listed Private & Commercial Finance rose 4½p to 19½p. The vehicle and equipment leasing group described new business as buoyant. First Technology continued to respond to yesterday's announcement that it had received a bid approach with a further rise of 7½p to 238p. Broker Bridgewell Securities has raised its rating from underweight to neutral and reckons potential suitors could include Honeywell, UTC and Tyco, which may want to broaden their product offering to include gas.

Media specialist Chime Communications, 1¼p better at 28p, expects results for the full year to be in line with City expectations. Headline operating profits are expected to be 20% higher with its public relations side picking up new business, including with Callaway Golf, COI/Financial Services Authority, ebookers and Gala Bingo. Broker Numis Securities repeated its buy rating and 49p target.

Building products maker Ennstone dipped ½p to 40½p after a line of 12.9m shares was sold at 38p. Car dealer Inchcape fell 60p to 2322p despite assuring brokers in its latest trading update that pretax profits would be in line with a City consensus £188.5m, up 12% on the previous year. UBS repeated its neutral stance and 2200p target, but Panmure Gordon put its buy rating under review ahead of meeting the company.

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