Market Report: Deutsche Bank toasts SABMiller's strategy

Investors are fast warming to SABMiller's significant exposure to emerging markets. The brewer's cause was helped yesterday by a bullish piece of research from Deutsche Bank which spelt out the impressive earnings growth the company is likely to enjoy thanks to its presence in more exotic parts of the world.

During the summer, SAB completed its largest acquisition to date, the £2.8bn purchase of the Colombian brewer Bavaria, which gave it a significant foothold in South America's fast-growing market. The deal greatly broadened SAB's emerging market portfolio and means the group's shareholders can look forward to double-digit profit growth in both 2006 and 2007, according to Deutsche.

The broker is unconcerned by suggestions that SAB's rival, AmBev, might soon enter the Colombian market. It believes the country is big enough for both players. Hence, Deutsche had no problem raising its price target on the stock to 1,250p from 1,050p and urging investors to buy into the company. Meanwhile, JP Morgan suggested that SAB's trading statement later this month is likely to be a bullish affair and argued that City analysts will soon have to raise their forecasts for the brewer. SAB closed 11p higher at 1,099p.

O2 rose 0.75p to 157.75p amid talk that NTT DoCoMo might also be interested in bidding for the company. Also supporting the shares was Credit Suisse First Boston, which agreed that the Japanese player could well end up making a move on O2.

The Swiss broker highlighted recent comments from DoCoMo, which said that its international division was mulling an acquisition in Europe.

As for intense speculation over the past few months linking Deutsche Telekom with a bid for O2, CSFB said it did not expect the German group to comment publicly on the rumours as it was constrained from doing so by Takeover Panel rules.

Elsewhere in the sector, Virgin Mobile soared 6 per cent, or 16.75p, to 295p, after Investec Securities raised its earnings forecasts for the mobile phone group. The South African broker believes the group is performing well and also suggested that if O2 were to be bought, the focus is bound to move to Virgin as the next most likely consolidation target in the UK.

BAT was at first hit hard by news of a court ruling across the Atlantic. Shares in the cigarette maker traded at 1,165p after Canada's Supreme Court decided that it was constitutional for British Columbia to sue the local tobacco industry for smoking-related health-care costs. Investors worried that the development could end up costing BAT billions but the stock quickly rallied as analysts argued that the legal process ahead may take up to 10 years to resolve.

Dresdner Kleinwort Wasserstein reminded the market that Canada only accounts for around 10 per cent of BAT earnings and also assured its clients that it is in no one's interest to sue the Canadian tobacco industry for such huge sums that it ends up becoming bankrupt. BAT finished the day 13p higher at 1,191p.

Pilkington ticked 0.25p lower to 139p as Merrill Lynch downgraded its rating on the glass maker to "sell" from "neutral". First, the US broker said it was not convinced by the recent takeover rumours to surround the company. Although Merrill said it liked what Pilkington's management had achieved, it believes that group's shares are simply overvalued at current levels.

Morgan Crucible put on 14.25p to 229.5p after the engineer surprised the City with the £225m it has managed to get from the sale of its magnetics division.

Regal Petroleum jumped 13p to 101.5p as it emerged that the oil explorer's former chairman Frank Timis had bought 1 million shares, thereby taking his total holding to 9.3 million, or 7.2 per cent.

Mr Timis founded Regal and many traders followed his lead and piled into the stock. "Mr Timis set up Regal and I would say few people know the company as well as him. If he is buying the shares they are very likely to be undervalued," concluded one trader.

The Romanian émigré's tenure at the helm of the group was certainly controversial and he was forced to resign earlier this year after a production failure at its Greek division. On Thursday, disaster struck Regal once again when it emerged that the ownership of its key Ukrainian asset had become the subject of a legal challenge.

International Ferro Metals (IFM) debuted on AIM, having raised £80m at 35p. Shares in the chromite miner closed at 36p, valuing a the group £150m. IFM plans to use the money raised to fund its project in South Africa.

Hitchens Harrison rose 2.5p to 122.5p on talk of buoyant trading at the City's oldest stock broker.