Market Report: Recovery hopes drive DSG to fresh high

DSG International last night closed at its highest level since October 2008, rallying by more than 8 per cent on hopes of an improvement in the electricals market.

Citigroup said recent data from the British Retail Consortium, which earlier this week said UK retail sales were up 3.8 per cent on a like-for-like (LFL) basis in October, showed a "material recovery in non-Food LFL trends". Indeed, in light of data from the market research specialist TNS and the Office for National Statistics, the BRC figures imply a 5.5 per cent rise in non-Food LFLs, compared to a 1.9 per cent decline in August, the broker noted.

"The BRC commentary suggests Clothing is the weakest non-Food category, implying [that LFL sales] for hard goods categories, including Electrical LFL, is above 5.5 per cent for the month," Citi explained, saying that further gains could be in store in the run-up to Christmas. "From now until December LFL comparatives ease a further 200 basis points. Further benefits could arise as consumers bring forward purchases before VAT rises in January."

Positive data from other sources also bodes well for DSG, which, with a relatively high level of operational and financial leverage, offers one of the most cyclical investment opportunities in the general retail space, the broker added, upping its earnings growth forecasts for the group. Citi also revised its stance on DSG to "buy" from "hold", helping the stock rise to 36.61p, up 8.2 per cent or 2.78p.

Overall, the FTSE 100 touched a new intraday high for the year, rising to 5301.14 at one point following the release of better than expected unemployment figures. The cheer helped the benchmark to close at 5266.75, up 36.2 points, while the mid-cap FTSE 250 index gained 105.62 points to 9226.58. Sentiment was also helped by the Bank of England's Inflation Report, which suggested that interest rates were likely to remain depressed until "at least late 2010", according to IHS Global Insight.

Legal & General was among the strongest of the blue chips, rising by 5.5 per cent or 4.5p to 85.85p as rumours of a possible break-up bid from Resolution, the buyout vehicle backed by the financial services tycoon Clive Cowdery, resurfaced. Traders played down the chatter, however, pinning the rise on indications from European insurance regulators that they could be open to changing solvency rules for annuity providers that in their current form might necessitate capital raisings at UK insurers.

In the wider sector, Old Mutual was 3.2p stronger at 112.2p, while Standard Life, which was upgraded to "equal weight" from "underweight" at Morgan Stanley, gained 5.5p to 221.1p.

Elsewhere, in the banking sector, Lloyds Banking Group was 4.04p ahead at 89.25p, after increasing the size of the maximum amount of enhanced capital notes under the non-US exchange offer to £7bn from £5.5bn on account of high levels of investor interest. Royal Bank of Scotland went the other way, retreating to 38.37p, down 0.66p, after KBW revised its target price for the stock to 44p from 48p.

The miners were strong, with traders attributing the jump to firmer commodities prices, which gained ground on the back of a weak dollar. Gold, prices for which touched a record high, was the standout performer, helping Randgold Resources to rise to 4858p, up 6.1 per cent or 281p. The stock was also supported by Bank of America Merrill Lynch, which raised its target for Randgold to 6500p. In the wider sector, Fresnillo, the Mexican silver miner, was 49.5p stronger at 892p, while Rio Tinto gained 75p to 3118p. Xstrata was 27p heavier at 1020p, and Lonmin closed at 1630p, up 42p.

Further afield, Go Ahead, the transport group, came under pressure, easing by 41p to 1301p, after Goldman Sachs sounded a note of caution on valuation, saying that it saw more upside elsewhere in the transport, travel and leisure sector. "Go-Ahead trades in line with the bus and rail sector once adjustment is made for the much stronger than sector average balance sheet," the broker added, moving the stock to "neutral" from "buy".

Back on the upside, the latest news on UK unemployment strengthened confidence around the house-builders, with Redrow, for instance, rising by 4.9p to 147.2p. Data from the Council of Mortgage Lenders, which evidenced a rise in the number of loans for house purchase between August and September, also boosted sentiment, with Bovis Homes gaining 16.3p to 427.1p.

Among smaller companies, Innovation, the software group, was 0.25p ahead at 12.25p after Panmure Gordon switched its stance to "buy" from "hold", saying that recent news of chief executive Hassan Sadiq's departure from the company "should be greeted favourably".

"Simply put, despite Mr Sadiq's hard graft, investors have grown weary of the slow progress and the shares have been 'dead money' – frustrating for investors and the CEO alike," the broker said, revising its target price for the group's stock to 15p, compared to 14.3p previously. "There are many questions outstanding, yet signs the company is reaching out to shareholders is positive."