Market Report: Trinity strengthens on Citi double upgrade

A double upgrade from Citigroup boosted the newspaper publisher Trinity Mirror, which advanced by almost 10 per cent yesterday.

The broker moved the stock, which closed at 59p, up 5.25p, to "buy" from "sell", saying that the group was well placed to reduce leverage as it faces up to the sharp economic headwinds besieging the media sector.

Citi's argument was based on lessons from Eniro, the Nordic Yellow Pages publisher, which recently announced plans to bolster its balance sheet by tapping shareholders for 2.5bn Swedish kronor (£209m).

The capital raising was fully committed and underwritten, a fact that Citi attributes to the depressed valuation of the company's stock; the headline numbers, which, the broker said, "seem to have almost lost their capacity to disappoint"; and the announcement of management changes and a new restructuring programme, which together provide a "story" that investors can believe in. The fact that Eniro's stock was tightly held, but not focused in a major investor, was also important, Citi said, before drawing parallels with Trinity.

Unlike some of its domestic peers, about 68 per cent of Trinity's stock is spread among the top 10 shareholders, which gives it scope to scout around for support. Add to that the fact that "there is a kernel of a 'story' in the proposed loosening of competition rules governing local newspapers and the group's tentative digital strategy", and Citi estimates that, despite poor macroeconomic trends, Trinity "could make a meaningful difference to its leverage" by tapping shareholders.

Overall, the FTSE 100 was broadly unchanged, easing slightly to 4,243.22, down 0.49 points, while the FTSE 250 gained 42.38 points to 7,571.33.

Investors moved to secure profits in parts of the banking sector, sending Lloyds Banking Group to 109.6p, down 2.4p, and Barclays, which is due to post a first-quarter update next week, to 279p, down 2.5p. Collins Stewart, which weighed in on the update, will be keeping an eye on Barclays Capital, the group's investment banking arm, which, given the positive performances from US peers such as Goldman Sachs and JP Morgan, is expected to post strong revenues.

Royal Bank of Scotland, which is also due to update the market next week, managed to hold on to its gains, rising by 2.2p to 44p, as Deutsche Bank highlighted the scope for a potential government stake sale. "The recent rally brings the Lloyds and RBS share prices to within 7 per cent and 19 per cent of the average [Treasury] acquisition price, which reasonably ought to increase the potential for an early conversion of 'B' share and placement of government shares," analysts at Deutsche Bank said.

Similar factors were said to be at play in the life insurance sector. Aviva, which rallied strongly after revealing a higher than forecast capital cushion, retreated to 307.75p, down 7.75p, and Legal & General eased to 56.3p, down 2p, as investors banked gains.

Elsewhere, the mining sector rallied as investors continued to bet on some economic stabilisation in China, a key consumer of industrial commodities. Firmer copper prices were also a factor, with Kazakhmys gaining 10.3 per cent or 55p to 590p, and Antofagasta rising to 619p, up 4.8 per cent or 28p.

Citigroup provided additional support to Vedanta Resources, which climbed to 1,130p, up 5.2 per cent or 56p, after the broker upped its target for the stock to 1,230p from 725p as it revised estimates ahead of the miner's full-year results, which are due next week.

Lonmin, up 3.8 per cent or 55p to 1494p, was also the beneficiary of some broker support. Investec moved the stock to "hold" from "sell", telling clients that the platinum producer's balance sheet was healthier than before, while management was gaining credibility. "Although we see a near-term risk that the first-half financials could be negatively affected by high unit costs, we believe the longer-term outlook is improving," the broker added, raising its target for the shares by 15 per cent to 1,300p.

Also on the upside, Pennon rose to 464.5p, up 4.4 per cent or 19.7p, after UBS said that alongside National Grid, which rose to 567p, up 2.5p, it was best placed among UK utilities. "Although UK-regulated utilities have good visibility of cash flows, they are not completely immune to [the] current economic weakness," UBS added.

On the second tier, Brit Insurance, down 3.9 per cent or 7.25p at 178p, was rumoured to be eyeing Chaucer Holdings, which was up 0.5p at 41.75p.

Game, the video games retailer, was 0.75p firmer at 199p after Deutsche Bank upped its target for the stock to 210p from 190p in a new sector review. "Most companies are reporting smaller sales declines, better gross margins and more cost-savings that we expected," the broker said. "Our updated model of household residual cash suggests a decline of 2.6 per cent in 2009 against our previous estimate of 4.4 per cent."

WH Smith, whose target was upped to 470p from 420p at Deutsche, was 10p heavier at 430p, while Halfords, whose target was moved to 325p for 310p, was 4.5p ahead at 337.5p.