Market Report: Resurgent AB Foods hit by broker downgrade

Few investors would have bet on Associated British Foods being the hottest stock in the London market over the past couple of months. However, any investor lucky enough to have taken a punt at the start of June should be laughing; the stock has gained more than 22 per cent over a period when the FTSE 100 has risen a little more than 7 per cent.

Nothing goes up in a straight line though, and a downbeat note from the broker Cazenove put the brakes on AB Foods yesterday. Its analyst, Sandy Soames, believes that because of the recent strong performance AB Foods now stands on a "challenging valuation" at 15.6 times 2006 earnings forecasts, and that most of the good news is in the price.

The broker also believes that Primark, the discount fashion chain owned by AB Foods, could be suffering from cannibalisation as former BHS stores are converted, as well as intense pressure from rival discount chains. News of the Cazenove downgrade sent AB Foods 3.5p lower to 855.5p.

The market is not short on bulls of InterContinental Hotels, despite yesterday's 1p fall to 904p. The company is due to report interim results today and the general consensus among traders is that forecasts could be beaten comfortably. The Dutch broker ABN Amro upped its price target on the shares yesterday, reiterating its "buy" recommendation with a target of 1,075p.

In the wider market, the blue-chip index was slightly better on the back of bid talk, despite the oil price surging again. Strength in mining and oil stocks sent the FTSE 100 up 11.8 to 5915.2.

Talk that the mining giant Anglo American could the subject of an $80bn (£42bn) break-up bid seem to have found supporters in the market, as the stock topped the FTSE 100 leader board with an 86p gain to 2,455p. There is speculation that Rio Tinto, Xstrata and the Brazilian mining group Cia Vale do Rio Doce have engaged an unnamed investment bank to go over the numbers. However, some traders pointed out Xstrata has only just won the battle for the Canadian nickel mining group Falconbridge, making it too soon for the company to contemplate a much larger acquisition. Rio Tinto added 34p to 2,756p while Xstrata climbed 23p to 2,253p.

With the deadline looming over uranium enrichment in Iran, the oil price firmed again, giving good gains to second-line oil stocks. The best performer was Premier Oil, 35.5p better at 992.5p, with Soco International - up 23p to 1,295p - and Dana Petroleum - 34p higher at 1,259.5p - also attracting investors.

The broker Credit Suisse poured cold water on rumours that MFI Furniture, down .175p to 87.25p, may sell its retail arm this week, downgrading the shares to "underperform" and cutting its target price to 78p from 85p. The Swiss investment bank said "some hard bargaining" was still to be done before the retail arm is sold off.

A blockbuster announcement from Air Inventory excited traders, even after the stock soared 53.5p to close at 372p. The group has been selected by the Australian airline Qantas as its preferred supplier of expendable and recoverable aircraft parts, a 10-year deal with the final details to be confirmed. Some traders believe the deal could see the shares trade up to 500p.

The AIM-listed oil services group Plexus Holdings, unchanged at 66.5p, is thought to be on the verge of announcing a deal with the oil subsidiary of the shipping giant Maersk, Denmark's largest company. Although the deal to supply well heads for two platforms in the North Sea will not transform Plexus, traders said it was the first of several potentially lucrative deals in the pipeline.

The football season is nota week old, but Newcastle United shareholders have reason to cheer after the Jersey-based investment group, Belgravia, made an approach that may lead to an offer. Shares in the football club leapt 10p to 71p in early deals before some profit-taking knocked the gloss off, and the stock closed up 6p at 67p.

Retail investors continued to pile into Renesola, the Chinese solar-power cell manufacturer, after a solid set of interim numbers last week. The shares added 32p to close at 149.5p, a 89.2 per cent premium to the placing price of 79p in less than two weeks of trading.

Finally, small-cap oil traders will be on the lookout for Aurelian Oil & Gas as it begins trading on AIM today. The shares were placed at 55p and brokers expect the stock to move to a decent premium.