Leading shares recorded their first positive week this year, despite the turmoil caused by the Swiss central bank removing its currency cap against the euro.
With a recovery in metal prices - copper rose for the second day in a row on Friday - and oil, as well as growing hopes the European Central Bank would unveil some form of quantitative easing next week, the FTSE 100 finished 51.59 points higher at 6550.27, a rise of 0.76% on the week.
European markets also gained ground, while Wall Street was up around 35 points by the time London closed.
BP was the biggest riser in the leading index, helped by a near 2% rise in Brent crude after better than expected US consumer confidence figures, but more significantly by a US court ruling which suggested a lower than expected penalty relating to the Gulf of Mexico disaster in 2010.
Tullow Oil recovered from recent weakness to close 9.8p higher at 364.7p.
Mining companies were also on the recovery track, with Glencore up 11.95p to 252.55p, Anglo American adding 40p to 1099.5p and Fresnillo up 29.5p to 844.5p.
Chris Beauchamp, market analyst at IG, said:
It has been a day of bargain hunting in many FTSE names, with the top end of the index dominated by companies that have seen heavy losses during the week. Oil’s rebound today has set BP and Tullow rallying [and with] the fall in copper prices paused for now, miners have taken the chance to move higher.
European indices continue to leave the FTSE in the dust however, with the Dax in particular capping a good week with further gains today, moving firmly back above 10,000 as the long-awaited ECB meeting gets a day closer. Clearly the positioning in the market at present is for some form of action from the ECB, although whether it will be enough to satisfy traders is another question entirely. With Greek elections taking place at the end of next week it promises to be another week of elevated volatility.
But Arm lost 5.5p to 990p on concerns of growing competition as US rival Intel reported stronger than expected sales of tablets using its chips.
Among the mid-caps JD Sports Fashion jumped 31.9p to 508p after bumper Christmas results, but Countrywide closed 25p lower at 429p as Barclays cut its recommendation on the property group to equal weight from overweight. The bank said:
Since the height of the financial crisis, volumes in the UK residential market have been characterised by three distinct phases: stasis (2009/2012), recovery (2013 onwards) and, more recently, a fall, likely driven by pre-election caution and some impact from tougher bank lending criteria. In our view, this latter phase, which is at its most acute in central London - where fears of a possible Mansion Tax are focused - is likely to continue until after the General Election. Ahead of next week’s trading update (22nd January), we reduce our forecasts on Countrywide, which remains, to a large extent, a play on UK residential transaction volumes.
Dignity, the funeral services group, dipped 46p to £17.98 as Berenberg moved from buy to hold. It said:
We downgrade Dignity following significant outperformance since our initiation in July 2014, following which the stock has risen by around 20% as well as returned £1.20 per share to shareholders in November. While we continue to like the business model and believe the company has a strong management team, on the current valuation of 19.4 times 2014 PE or a 14% earnings per share compound annual growth rate 2014-2016 on our numbers, we see limited further upside potential and would wait for a better entry point.
We believe there are three areas in which the business could surprise and lead us to revisit our view.
1) M&A: Dignity has historically acquired around 25 new sites per year and management had suggested that it expected a lower number of acquisitions in future. Our model currently assumes that Dignity spent £25m in 2014 and will spend £15m in 2015 and 2016. Should the business beat these expectations, without inflation in the typical 8-9 times EBITDA acquisition multiples paid for sites, we would expect higher-than-forecast earnings.
2) Pricing: Dignity has historically been able to drive through above-inflation price increases in both the funeral services and crematoria businesses. Despite some investor concern, recent results have shown continued strong pricing growth. The ability of the business to continue driving pricing increases is key to medium-term lfl growth, given the relatively stable mortality rate. Should the business exceed our expectations for pricing growth, we would expect to see faster-than- forecast revenue growth.
3) Demographic changes: Our model is predicated on forecasts provided by the UK Office for National Statistics for the UK mortality rate. Current forecasts expect this rate to remain broadly flat for the next three years, with a gradual increase expected from 2017 onwards. With an ageing population in the UK, this rate is expected to increase in the medium term which would be positive for Dignity. An indication that the rate is increasing faster than expected would lead us to revisit our forecasts.
Finally, more fallout from the currency turmoil. IG fell 4.5p to 705p following the company saying it faced a hit of up to £30m following the Swiss bank’s shock decision on Thursday to remove the currency cap against the euro.
London Capital Group, down 6.75p at 35p, also revealed its possible exposure, in this case £1.7m.
