Market Report: BP stands firm as broker highlights upside

BP was firm last night, as Exane BNP Paribas highlighted the potential share price upside, moving its recommendation to "outperform" from "neutral".

The broker said the stock, which closed 5p higher at 523.5p, was well placed to outperform as the oil price gains ground, owing to the company's higher than average exposure to exploration and production activities, and the attractive dividend yield, which it said appeared safe.

"Apart from the environment and the share price, we were reassured at [the] BP Houston analysts' day last week," Exane said, adding that the company appeared to making "real progress" with its restructuring plan. "Having launched its restructuring at the earlier point among the majors in 2007, when the new management team came in, it now appears to be ahead of the pack," the broker said. "Upstream cash costs remained flat in 2008 amidst industry inflation and the group's overall $1bn (£617m) of cost cutting achieved in the first quarter of 2009 increases confidence in the group's £2bn target for this year."

In keeping with its positive views, Exane moved its recommendation to "outperform" from "neutral", setting a 590p target price for the stock.

Overall, the FTSE 100 was broadly unchanged, rising slightly to 4,386.94, up 3.52 points, while the FTSE 250 eased to 7,660.07, down 28.12 points at the end of a relatively quiet session.

Miners dominated the downside, with Rio Tinto, down 6.6 per cent or 192p at 2720p, among the weakest amid heavy rumours that the Chinalco deal may be called off, opening the door to a possible rights issue. In a statement to the Stock Exchange, Rio said simply that it was "pursuing a range of options, some of which are at an advanced stage, for maximizing shareholder value and improving the group's capital structure".

The chatter unsettled sentiment across the sector, with Lonmin retreating to 1,410p, down 6.6 per cent or 100p, and Kazakhmys sliding to 662p, down 5.3 per cent or 37p.

Elsewhere, British Airways eased back to 149.4p, down 1.8 per cent or 2.7p, after Standard & Poor's, the ratings agency, switched its outlook to "negative" from "stable". "The outlook revision reflects our view that the trading outlook for BA's fiscal 2010 has deteriorated following [the company's] recent withdrawal of previous guidance of an operating loss of £150m in the financial year ended March 31 2010," S&P's credit analyst, Eve Greb, said. "We had anticipated BA to target a level of operating performance in fiscal 2010 comparable with the previous year."

Rolls-Royce eased to 323p, down 1.3 per cent or 4.25p, as Credit Suisse scaled back its target price for the stock to 460p from 475p after factoring in the recent weakness in the US dollar.

The broker also weighed in on Kingfisher, which rose 4p to 196.6p. Upping its recommendation to "outperform", Credit Suisse said the recent first-quarter results "demonstrated the effect of decent sales growth on a cost base being run very defensively in the UK".

"We have high hopes that B&Q's management team can transform it into a soundly based generator of acceptable returns across the cycle," the broker added. "But in the short term, the incremental financial benefit has come from a pick-up in demand."

Real estate was in favour after a Halifax report revealed that UK house prices registered an unexpected spike last month. The news triggered buying in commercial property plays, with Great Portland Estates rising 7.7 per cent or 24p to 334p, Derwent London gaining 3.4 per cent or 29.5p to 906.5p, and Hammerson, which sold a 75 per cent interest in London's Bishops Square development to the government of Oman's investment arm, up 9.3 per cent or 25.75p to 303p.

Recruiters Hays, up 4.4 per cent or 3.75p at 88.75p, and Sthree, up 1p at 203p, were firm after Singer Capital Markets initiated coverage with a "buy" stance. Hays was said to be in the sights of Adecco, the Swiss recruiter which last year attempted to acquire Michael Page.

Singer said that with economic conditions stabilising, "several early cycle elements of the global labour market are already tentatively improving". It added: "In the UK, our analysis of accountancy internet job boards suggests that the number of vacancies has stabilised since the start of April and the decline in year-on-year growth is moderating as comparables unwind."

Debenhams fell to 90p, down 2.4 per cent or 2.25p, after launching a long-awaited equity issue. Nick Bubb, a retail analyst at Pali International, said that although the move doesn't take debt off the agenda entirely, "it has enabled [the company] to renegotiate their banking covenants to increase headroom, and, despite higher margin/fees, it will cut the interest charge by £10m to around £48m pro-forma in 2010."

Among smaller companies, D1 Oils fell to 9.13p, down 18.8 per cent or 2.12p, after the company said that the outcome of the fundraising process for its joint venture for the planting of jatropha crop was uncertain, and as a result, it anticipated that the venture will have no carrying value in its results for the year to 31 December 2008.