Market Report: Petrofac stands out as Footsie strengthens

Petrofac LED the blue-chip risers as the FTSE 100 climbed to its highest level since the throes of the banking crisis in October.

The oil and gas services group saw its share price surge by more than 11 per cent or 86.5p, closing at 837p, its highest level since listing in 2005, after UBS weighed in with a "buy" note. The broker said the company was well placed to protect its margins, even as it banks new contracts. Moreover, the stock is cheap relative to its domestic and European peers.

"Petrofac has been awarded $6bn in lump sum work so far this year and continues to bid on new contacts," the broker said. "We believe the company is likely to be able to maintain its industry-leading margin level on these contracts, and our review of upcoming tenders suggests there remains substantial room for further growth."

Besides advising investors to pile in, UBS upped its target price for the stock to 1000p, compared to 600p previously.

Overall, the FTSE 100, boosted by positive earnings and economic news, enjoyed another strong session, rallying to 4682.46, up 1.6 per cent or 74.1 points, while the FTSE 250, which took its cue from the senior index, swung past the 8,000-point mark for the first time since late September, rising by almost 2 per cent or 158.2 points to 8158.16. Setting a new record for 2009, the Footsie is now at its highest level since October last year.

The banking sector provided the key talking points of the day, with well received results from two of the country's biggest lenders, Barclays and HSBC, drawing punters into risky financial plays. At the close, Barclays was 6.7 per cent or 20.25p higher at 322.55p and HSBC was 5 per cent or 30.15p stronger at 635.9p, while Standard Chartered rose to 1436p, up 1.6 per cent or 15p, ahead of its interim results this morning. Lloyds, which is due to report tomorrow, was 0.25p firmer at 85.25p, while the Royal Bank of Scotland, which will post an update at the end of this week, closed 3.5 per cent or 1.565p heavier at 46.410p amid reports that the Australia and New Zealand Banking Group, better known as ANZ, was closing in on a deal to acquire some of RBS's Asian assets.

Elsewhere, Legal & General was unsettled, touching a session low of 61.7p, following weekend reports suggesting it may unveil a dividend cut alongside its half-year results, which are due to be published this morning. The stock pared losses in afternoon trade, closing at 65.25p, up 0.8p.

Besides the news from the banks, the market was also cheered by data pointing to the strongest rise in UK manufacturing output in July since late 2007. The figures emboldened bullish traders, who bought into the heavily weighted mining sector on hopes of better economic times, and by implication, a better demand outlook. A weak dollar also played its part in the rally.

Kazakhmys was the biggest beneficiary of the turn in sentiment, rising by almost 9 per cent or 75p, while Xstrata, the target price for which was raised to 820p from 800p at Bank of America-Merrill Lynch, gained just over 7 per cent or 57.3p to 865.5p.

Antofagasta, which was moved to "hold" from "sell" at Canaccord Adams, was 5.3 per cent or 40p better off at 797p. Vedanta Resources, the target price for which was raised to 1530p from 1440p at Deutsche Bank, was also strong, advancing to 1869p, up almost 6 per cent or 105p.

Also on the upside, Marks & Spencer, up 3.25p at 349p, stood firm, supported by a new Goldman Sachs circular. Adding the stock to its widely followed "conviction buy" list, the broker said management's new strategy, expected in October, was likely to act as a positive catalyst for the shares.

"In our view, the strongest reaction would be driven by a combination of targets for: (1) improved operational execution, modernisation, integration and operational excellence in the supply chain; (2) development of the multi-channel offer, targeting a leading UK internet retailer position; (3) a store closure programme; and (4) an overhaul of the management incentive structures, focusing on returns rather than growth," Goldman said.

On the second tier, Intermediate Capital was 11.4 per cent or 22.4p higher at 218.9p thanks to Bank of America-Merrill Lynch, which switched its stance on the stock to "buy".

"While we recognise that [the company] faces a number of macro issues, and is in the midst of reshaping its business, we think that the recent divergence between credit markets, where [it] operations, and its own share price has left the stock looking attractive," the broker said, keeping its 240p target price unchanged.

Deutsche Bank aided Cookson, which climbed to 342.7p, up 10.1 per cent or 31.45p, after the broker said "buy". Traders also attributed the gains to buying ahead of the company's half yearly results, which are due this morning.

"Cookson's fortunes are closely tied to the steel production cycle," Deutsche said, "Steel production was down 40-50 per cent in the western world in the first half of the year, but there are signs that the de-stocking is coming to an end." Despite upgrading its stance, and raising its target price for the stock to 500p from 170p, the broker added that "there is a possibility Cookson will breach the coveants on its debt in December."