Pubs buoyant on prospect of World Cup drinking

Rosamund Urwin
28 Jan 2010

Footie fans downing beer while they watch the World Cup should give Britain's long-suffering pub operators a big boost this summer.

That's according to Bank of America Merrill Lynch, who said today that the City has not priced into shares the jump in beer volumes the football will bring. While bosses in the sector have been quick to point out the risks for the year ahead, with the economic recovery looking fragile, analysts say they have failed to highlight the benefits of the tournament.

Despite warning that this year could still be a challenging time for the industry, Merrill is a buyer of Punch Taverns, Enterprise Inns, Marston's and Greene King. The heavyweight broker notes that trading is starting to pick up across the industry and believes that property values in the sector may now have hit the bottom.

The positive sentiment pushed Punch Taverns up to first place on the mid tier, adding 3.5p to 85.8p, and Greene King gained 19.4p to 462p. Marston's was up 1.2p at 89p and Enterprise Inns rose 3.2p to 117.2p.

Shares in London were in positive territory, thanks to a strong showing from the heavyweight miners and banks. The FTSE 100 gained 11.20 points to 5228.67, helped by the Federal Reserve's pledge last night to keep US interest rates low and President Obama's call for Congress to approve a package of tax cuts and spending in order to boost growth.

“Yesterday's sell-off looked a bit of an over-reaction, so we are seeing something of a recovery today in the miners and strength in some of the banks. BSkyB's strong figures have also helped. But the mood in London remains one of caution — investors have more questions than answers at the moment,” said Richard Hunter, head of UK equities at Hargreaves Lansdown stockbrokers. “The fourth-quarter earnings season in the States has been a mixed bag, although mostly positive. But fears remain over China's tightening the monetary supply and the global implications of the Obama plan.”

Barclays was the best-performing blue chip, followed by taxpayer-owned rival Royal Bank of Scotland after Obama appeared to tone down his tough position on the banks, saying he does not wish to punish them. Barclays surged 9½p to 276¼p and RBS shot up ¾p to 33¾p.

HSBC gained 6.3p to 669.3p as UBS advised snapping up the stock. The broker notes that bad debt charges are falling at its US arm Household and that the City's forecast for bad debts are too high — they expect $10 billion this year, a fall of $2 billion. But analysts say corporate refinancing, rising property prices in Asia and a drop in unemployment in Britain may leave even their bad debt forecasts too high. They believe shares could be worth up to 1100p by 2012. Rival Lloyds Banking Group added ¾p to 51½p as Deutsche Bank slapped a buy rating on the black horse bank.

Miners were helped by advice from Nomura to buy into the current dip in the sector's shares. The Japanese broker reckons that fears over more draconian controls on the monetary supply in China are misplaced. Analysts predict that the nation's appetite for industrial metals will keep beating forecasts this year. They note that historically the mining sector actually outperforms the market through tightening cycles. In a note to clients, Nomura said: “The current correction in mining equities reminds us of the short-lived correction at the beginning of China's tightening cycle at the end of 2004.”

Nomura names Rio Tinto, 15½p higher at 3147p, and Anglo American, 12p better at 2391p, as its top picks. It has set a 4300p price target for Rio and 3500p for Anglo. Kazakhmys and Xstrata also managed rises, up respectively 22p to 1287p and 15p to 1065p.

But on the downside, pharmaceuticals giant AstraZeneca slid 77p to 2968p after announcing massive job losses and warning that the next five years will be challenging for the drugs industry and for the company.

On the mid-tier, sugar and sweeteners giant Tate & Lyle was the biggest loser, sinking 15¾p at 391¼p after warning that profits will be at the low end of City forecasts this year as a result of a poor third quarter.

But ARM Holdings shot up 6.8p to 200.4p on speculation that the chip designer's technology was used in Apple's iPad, the latest gadget which has tech geeks salivating. The shares were also helped higher by talk that it could replace Cadbury in the FTSE 100 following Kraft's takeover of the Dairy Milk maker.

TRADER TALK

Valiance Special Opportunities fund of funds has scooped up a significant holding in biofuels group GTL Resources. Spurred on by an upbeat trading statement from the group last week, the investment fund has bought one million shares in the company which owns a number of businesses making fuel from corn. The move gives Valiance at 3.13% stake in GTL — worth approximately £580,000. Valiance which has a history of investing in alternative fuels bought the stake just a day after the latest update from GTL, which hopes to expand its business in America. The US-based bio-refining company announced record performance at its majority-owned subsidiary Illinois River Energy for the month of December. GTL is keen to expand its operations in the US by acquiring production facilities across America and consolidating the fragmented industry. GTL's update helped to push its shares to new highs.

Deborah Hyde, Citywire.co.uk

TOMORROW'S AGENDA

Nationwide publishes its house prices survey for January. The building society recently said that the outlook for house prices is “still clouded by fog”, so analysts will be hoping that the latest survey will help to clear that fog a little and offer a peak into the future shape of the market. Experts reckon the index will show house prices continued on a trajectory of shaky recovery during the month, rising 0.3% following on from the 0.4% increase it showed last month, which should help to bring the annual rate of increase to 7.3%. But analysts have warned that values could drop again later on in the year if unemployment rates begin to creep up again and the cost of borrowing rises.

Consumer morale is expected to stay in negative territory as concerns about job security and the economic outlook persist. In December the GfK NOP consumer confidence index came in at between -18 and -19 and when the figure for January comes out tomorrow it is expected to be only marginally higher.

The US economic output figures are released. GDP is forecast to be up more than 4.5% in the fourth quarter, far higher than the 2.2% recorded in the third quarter and a decline of 0.7% in the second quarter. But personal consumption spending — which makes up by far the biggest chunk in US GDP — is predicted to be up 1.8% in the fourth quarter, down from 2.8% previously.

Portfolio

BUY: Vedanta Resources
Charles Stanley urges investors to fill their boots with shares in Indian-focused mining giant Vedanta Resources — but it comes with a health warning. Along with the whole mining sector, Vedanta — the FTSE 100's second-best performing stock last year — is only recommended for the long term. “On an 18-month and longer term view we continue with our Accumulate recommendation,” its note says. The recommendation followed yesterday's third-quarter trading update which was broadly in line with forecasts. Vedanta is still relatively restricted in the number of metals it mines — aluminium, copper, zinc and iron ore.

SELL: De La Rue
UBS reckons banknote printer De La Rue is too expensive despite its defensive qualities, which could appeal to the risk-averse punter in these troubled times. After a trading snapshot from the company yesterday, UBS upped its profit forecasts for the year by a notch — by 2% to £103 million to be precise. However, it still deems the stock a sell. Orders will slow in the run-up to next year, it argues, adding that on 14-times profit forecasts for that year, the share price is full already. “We think momentum has peaked,” it adds. Management at De La Rue did not comment on the order book but flat volumes are expected.

HOLD: Fidessa
Panmure Gordon says investors should hang onto Fidessa — the unsung hero of the Square Mile. The company provides software and trading data for fund managers and brokers. Recent figures from the Stock Exchange were pretty weak because of the lack of what Panmure calls “bums on seats” after repeated staff culls. That makes Fidessa's task of selling data more onerous. Barack Obama's curbs on banks' trading won't help either. However, Fidessa is gaining market share and has decent growth in emerging markets. Balancing those factors against each other, Panmure reduces its recommendation from buy to hold.