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Market Report: Contrarian investors help Morrisons advance

Toby Green
Tuesday 03 May 2011 19:00 EDT
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WM Morrison managed to reach its highest level for more than six months last night after the supermarket was picked out as a great bet for "contrarian investors". The group jumped up 3.1p to 297.9p, the latest rise in a run that has seen it lifted nearly 8 per cent since the start of April, as HSBC said the food retailers – and Morrisons in particular – were the best choice for those who like to go against the crowd.

Noting that "institutional investors have been reducing their holdings in [the sector] for over two years", the broker claimed "food retail has outperformed in the past when institutions have been underweight". This pessimism makes the sector "resilient to shocks and bodes well for future returns", its analysts said, as Tesco advanced 2.45p to 406p while J Sainsbury ticked up 1.7p to 350p.

Morrisons was also helped by positive words ahead of tomorrow's trading update, with Evolution Securities highlighting "recent market data [which] suggests [it] has returned to sector leading growth", and Shore Capital suggesting the recent run of bank holidays could lead "to a pleasant surprise".

However, the supermarkets' fortunes were in stark contrast to the wider sector after the latest report from the Confederation of British Industry revealed retailers think this month will be the worst for almost a year. Next, which is set to release an update today, fell 15p to 2,222p, while Marks & Spencer declined 3.6p to 384.4p, and there were also losses for Kingfisher – down 4p to 270.5p – and Home Retail – down 2.7p to 217.2p – with the survey showing another drop in sales last month of DIY and hardware goods.

Those hoping for a major rally following the death of Osama bin Laden were disappointed as the FTSE 100 edged up just 12.98 points to 6,082.88. A fall in metal prices meant a number of the blue-chip miners headed downwards, including Randgold Resources which slipped back 244p to 4,976p.

Rio Tinto was another left behind, easing down 67.5p to 4,292.5p, despite Credit Suisse keeping its "outperform" rating. Speculation – played down by traders – spread late in the session that the miner was close to submitting a takeover bid for the US group Alcoa, with a price mentioned of $25.50-a-share.

Global merger and acquisition activity elsewhere in the world provided a boost for the drug-makers following Teva Pharmaceutical's announcement on Monday that the Israeli group has agreed to buy Cephalon for $6.8bn. With further help coming from Pfizer posting impressive results, Astra- Zeneca shifted forwards 72p to 3,062p while Shire – itself frequently talked about as a potential bid target – gained 28p to 1,878p.

A surge of 8.3p to 258p left Man Group in pole position after it launched in Japan its largest fund since the financial crisis. At the opposite end, Smiths Group shed 76p to 1,256p as the technology group warned its airport security business was not on track to meet expectations and that the unit's boss Stephen Phipson was leaving his position.

Growing fears over the state of the advertising recovery meant ITV was driven back 1.65p to 74.4p, with Bank of America Merrill Lynch sounding the alarm. The broker said "trends appear to have deteriorated sharply into the second-quarter", and reduced its expectations for the broadcaster's advertising growth this year to 0.9 per cent from 3.3 per cent.

Down on the FTSE 250, Ferrexpo – a persistent subject of takeover speculation in recent weeks – failed to maintain an initial surge that saw it reach 522.5p in early trading, eventually closing 6.1p lower at 492.9p.

Lamprell was knocked back after the group, which upgrades and refurbishes oil and gas rigs, revealed the first four months of the year had seen it bring in $57m-worth of contracts. Analysts from Evolution Securities said the update "underlines our forecast for strong revenue and earnings growth from all businesses in 2012", yet this was not enough to prevent it dipping 8.4p to 362.8p.

Investors also seemed to disagree with analysts over William Hill, as the bookmaker announced it was spending $14.25m on the US sports betting group Brandywine. Espirito Santo welcomed the news, calling it "a small but strategically important acquisition" that continues its "strategic moves to become relevant in the US market as and when regulation comes through", but William Hill still plummeted 5.8p to 217.7p.

There was a major spurt of 3.5p to 18.5p on the Alternative Investment Market for Powerflute Oyj after the packaging company announced it was disposing of its graphic papers unit for €38.5m (£34.6m).

Meanwhile, on the small-cap index a profit warning from Thorntons – which the chocolatier blamed on the effects of the recent sunny weather on the key Easter trading period – meant it dropped nearly 13 per cent, moving 10.25p lower to 70p.

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