Market Report: Bullish broker helps British Land stand firm

British Land was among the stocks in focus last night after Credit Suisse turned positive on the UK commercial real estate sector, recommending investors sell retail issues instead.

The broker issued what it called a tactical upgrade, switching its stance on the real estate space to "overweight" from "benchmark" on account of a number of macroeconomic and pricing factors, including the weakness of the pound relative to the euro, and the fact that the British stocks have lagged behind their American peers by around 30 per cent since November.

The fact that investors have grown concerned about inflation also weighs in favour of turning positive on the sector, the broker said, as "property is an obvious inflation hedge, with rents tending to move in line with inflation".

For those worried about values, Credit Suisse highlighted that commercial property prices are already down 44 per cent, compared to a peak to trough decline of 27 per cent in the early 1990s. "In euros, UK commercial property is already down 57 per cent from peak," the broker added.

To make up for buying into property, the broker recommended scaling back positions in retail plays, which have been among the standout performers in recent months. "In the early 1990s retailing outperformed by 30 per cent as rates fell (this time it's been 70 per cent), but the sector stopped outperforming once retail sales recovered".

The assessment supported British Land, which is rated "outperform" at Credit Suisse and gained 5p to 385.25p, while HMV, which is rated "underperform", eased to 115p, down 0.25p. Land Securities, which was moved to "neutral" from "underperform", was also firm, gaining 4.5p to 470.5p, despite a move by Cazenove to move its rating on the stock to "in line" from "outperform".

Overall, it was a broadly positive day on the markets, with the FTSE 100 gaining 49.96 points to 4,279.98, and the FTSE 250 strengthening to 7,320.85, up 127.89 points

Anglo American led the blue chip risers, swinging to 1820p, up just over 10 per cent or 168p, after Xstrata, up 5.5 per cent or 34.9p at 674.8p, reiterated the case for an "all-share merger of equals", telling the market that a combination of the two would yield pre-tax synergies of "over $1bn per annum" by the third year of a merger.

In response, Matthew Hasson at Arbuthnot Securities said Xstrata's main criticism regarding Anglo's decision to turn down the merger proposal, namely that the offer was rejected too quickly and without the proper evaluation of synergies, "ignores the fact that the idea for a [merger] has been tossed around for over a year, and it would be surprising if Anglo was not already fully aware of the benefits of a combination and had [a] strong view on the fair value of a combination".

In the wider sector, leading stocks were buoyed by firmer metals prices and the prospect of a consolidation activity, with Kazakhmys rising to 630p, up almost 7 per cent or 40.5p, and Vedanta Resources gaining 3.2 per cent or 41p to 1340p.

Elsewhere, the banking sector moved up, as traders bought in on recent weakness, with Barclays rising to 270.8p, up 4.5 per cent or 11.7p, and Lloyds gaining 4 per cent or 2.57p to 67.57p.

HSBC was just over 1 per cent or 5.65p stronger at 518.15p, while Standard Chartered, which is due to post a pre-close trading update today, strengthened to 1,195p, up 5.3 per cent or 60p. Royal Bank of Scotland was also firm, gaining 0.37p to 35.56p.

On the downside, Man, the London-based hedge fund group, was just over 4 per cent or 11.7p behind at 275.25p, with traders citing the placing of about 12 million shares by Morgan Stanley as the cause of the weakness.

Further afield, on the FTSE 250, WH Smith was 3.2 per cent or 13.2p stronger at 423.5p thanks to Altium Securities, which switched its stance on the stock to "buy" from "hold". "We are not ignoring the longer-term risks to the high street trading format," the broker said.

"Online retailers and the supermarkets remain major threats. However, the elimination of weaker competitors strengthens [WH Smith's] position in the short term."

Pubs group Marston's, which was hit by an Altium downgrade in the session before, recovered to 118p, up 5.4 per cent or 6p, after UBS weighed in, moving its recommendation to "buy" from "neutral", citing the sharp share price fall since the company's rights issue announcement.

Among smaller companies, JJB Sports was buoyant, gaining 3.4 per cent or 1p to 30.5p, after Citigroup weighed in, saying that despite the hurdles posed by the company's debt facility constraints, execution risks and competitive pressures, "the share price upside for success outweighs the high risk".

"The post-August £25m debt facility is undoubtedly a hurdle to overcome, but not insurmountable and we believe extra funding (£10-£20m) from either equity or extended debt facilities is likely to provide the bridge to recovery," the broker said, moving its recommendation to "buy" from "hold".