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Has the wind of change start to blow through the High Street? Next chief executive David Keens popped into Goldman Sachs for a chat yesterday and was in bullish mood.
He reckons the market remains healthier than the majority of retailers had forecast. Supplier flexibility had been better than predicted and the gross margin pressure will move in the fashion retailer's favour in the second half of next year. Stocks on the shelves remain tight at Next and prices across the industry are expected to rise.
Goldman says Next, up 45p at 1576p, is one of the best-managed businesses in the sector with a strong focus on cash returns and its valuation compared with its peers remains attractive. It says Next should benefit from a rapid improvement in consumer cash flow. The broker has a buy rating on the shares with a 1738p price target.
Citigroup has raised Marks & Spencer, up 8½p at 315p, from hold to buy, along with Argos and B&Q stores group Home Retail, 7p better at 267p.
Investors generally were encouraged by second-quarter results from Alcoa overnight which fuelled a late rally on Wall Street. Alcoa made another loss although it wasn't as bad as some brokers had pencilled in. Even so, it enabled City investors to steady the ship after several days of losses. The FTSE 100 index responded with a rise of 38.03 at 4178.26.
The Bank of England's monetary policy committee voted to keep interest rates on hold which came as no surprise. But the Bank put off a decision on further quantitative easing until next month and that left gilts nursing losses. The September gilt future frittered away an early lead to trade more than a point lower at £117.89.
Some big chunks of Lloyds Banking Group, 0.94 dearer at 64.66p, have been going through on the ticker during the past 24 hours. Last night a line of 10 million went through at 65.65p accompanied by a line of 13.7 million at 63.4p and 6.2 million at 63.71p. This morning a trade in 11 million shares was recorded at 64.45p.
Mining giant Anglo American jumped 84p to 1647½p today, after letting rival Xstrata know the price it must pay if it wants its proposed £40 billion merger of equals to succeed. The big question for the City is: are Xstrata's pockets deep enough?
Whispers circulating in the Square Mile today claim Anglo's leading institutional shareholders are not happy with Xstrata's plan for a zero premium merger. They say they will only agree to a deal if Xstrata pays a premium of between 30% and 50% over the current ruling market price.
Anglo shares were changing hands today at 1532p. That means Xstrata, up 22.6p at 609.7p, would have to offer up to 2300p a share. In other words it would have to stump up an extra £10 billion, which may be beyond Xstrata.
The rest of the miners attracted selective support with Rio Tinto adding 78½p at 194½p and Fresnillo 43p at 485½p following a recommendation from Citigroup.
Bank of America Merrill Lynch reckons the excitement in the water utilities sector may be over for now ahead of the regulator's decision on pricing. The broker repeated its underperform rating on Pennon, 1½p up at 459¾p, and trimmed its target from 15p to 415p. It also has an underperform rating on United Utilities, down 5¾p at 468p, and cut its target from 450p to 435p.
Morgan Stanley argues that good times lay ahead for Tullow Oil, down 5½p at 858p, with its big interests in Uganda and Ghana reaping rich rewards. It says recent share price weakness merely reflects a softening of the oil price and estimates the existing discoveries in both Ghana and Uganda together with the legacy assets in the UK and Gabon are worth 800p a share. The exploration programme during the next six months could add a further £8 of value. The shares are rated overweight with a 1225p target. Elsewhere in the oil sector, Credit Suisse has jacked-up its target for Cairn Energy, down 72p at 2065p, from 1712p to 2004p.
Cazenove has repeated its underperform rating on Barratt Developments, down 4¾p at 150p, following its latest trading update. It has pointed out to clients that the housebuilder remains heavily in debt and will have to tap them within the next six months for extra cash.
Rival Redrow, which was 2p lighter at 210¾p, has also complained about the drought of available mortgages is choking off sales.
