Market Report: Thomas Cook firms up as FTSE 100 takes off

Thomas Cook stood firm last night, supported by a buoyant market trend and bullish words from Citigroup, which said investors should buy into a potential placing of Arcandor's stake.

The troubled German group is Thomas Cook's largest shareholder, with an interest of around 53 per cent. Citi, which played down the chances of Rewe moving to acquire the stake, said the 44 per cent equity holding was unlikely to be placed before Arcandor's three-month insolvency period expires in September, while a resolution regarding the remaining 9 per cent held via a convertible bond may take longer.

"In the event of a placing at a discount to market, we would recommend buying shares," the broker said, retaining a "buy" stance, albeit with a revised 310p target price, compared to 335p previously. "We see medium-term value in the stock and highlight its recent high of 298p on 6 May, before the Arcandor issue reappeared."

Helped by Citi's assessment, and an across-the-board improvement in sentiment, Thomas Cook closed at 214.5p, up 3.3 per cent or 6.75p.

Overall, strong trading on Wall Street drove sentiment across the London market, with the FTSE 100, up 2.6 per cent or 100.78 points at 4346.46, closing at its highest level in over a month. The FTSE 250 mimicked the benchmark index, rallying by 2.2 per cent or 161.24 to 7572.33.

American investors were buoyed by an upbeat earnings report from Intel, the chip maker, and a round of positive economic data. The read across in London helped to offset the impact of official figures showing that the number of people unemployed in the UK had climbed at a record rate in the three months to May.

The Footsie was also supported by steady gains in leading commodities as the dollar weakened, boosting the heavily weighted oil & gas and mining stocks. Xstrata, which closed at 666p, up 51.7p, led the miners, with Kazakhmys gaining 38p to 678.5p and the Eurasian Natural Resources Corporation advancing to 744p, up 26.5p.

In other mining sector news, market sources highlighted rumours that Anglo Platinum, which is majority-owned by Anglo American, may unveil a fundraising alongside its interim results later this month. The chatter had little impact on Anglo American, which advanced to 1800p, up 3 per cent or 52p.

In the oil & gas space, the exploration and production group Tullow Oil, which said Ghana's minister of energy had formally approved its Jubilee field phase 1 development plan, led the way, climbing to 934.5p, up 4.9 per cent or 43.5p.

Also on the upside, a round of bullish broker commentary boosted Next, the fashion retail group, which rose to 1667p, up 3.5 per cent or 57p. Morgan Stanley, which switched its stance to "overweight" from "equal weight", with a revised 1850p target price, compared to 1120p previously, labelled the stock its preferred play in the UK general retail sector, while Deutsche Bank, which moved its rating to "buy" from "hold", again with a revised 1850p target, advised investors to wade in before consensus forecasts rise further.

"Since Next's cautious outlook statement in March a number of things have started going right. The decline in the clothing market has been smaller than expected, Next has stabilised its market share, and the pressure on gross margins is likely to be much smaller too," Deutsche said.

"While the market is waking up to this, we believe by the end of 2009 the scale of upgrades will be larger than people imagine."

On the second tier, Heritage Oil remained firm, rising to 499p, up 1.8 per cent or 8.75p, amid persistent speculation regarding a possible approach from FTSE 100-listed Royal Dutch Shell, up 2.72 per cent or 40p at 1509p.

Bank of America Merrill Lynch weighed in on the house builder Bovis Homes, which closed 2.8 per cent or 11.2p higher at 412.25p after the broker raised its target for the stock to 410p from 390p, saying that the strength of the group's cashflow, as evidenced in last week's update, had exceeded its expectations.

"Having sold more than half of the around 1,000 units of finished stock with which it entered 2009, we think Bovis should sell the bulk of its remaining 450 such units in the second half of the year," Merrill said. "Being essentially complete, the sale of these is basically 100 per cent cashflow."

Elsewhere, SIG, the construction materials group, was just over 3.8 per cent or 3.75p higher at 101.75p, after MF Global weighed in on the recent acquisition of a small stake by IKO, the Canadian roofing and insulation group, calling the disclosure "the icing on the cake for this stock".

"With someone like IKO showing their hand (albeit they have now stated that this is 'only' an investment), we would not be surprised to see others follow suit," the broker said, upgrading SIG to "buy" from "neutral". "The companies which could be mentioned in this context are Knauf (of Germany), Saint Gobain, Travis Perkins (as a white knight or a potential merger candidate), CRH and possibly even Kingspan," MF added.