A boost to the mining sector from better than expected Chinese growth figures pushed leading shares to their highest close this year, despite an opening fall on Wall Street.
Mexican precious metals group Fresnillo was the biggest riser in the FTSE 100, up 35p to 911p as gold and silver moved higher once more.
With base metals like copper helped by news that Chinese GDP rose 7.4% last year - below the country’s target of 7.5% but higher than analyst predictions - Glencore also regained some ground after recent losses. Its shares ended 9.75p higher at 257.45p, helped by a positive recommendation from HSBC, albeit the bank analysts cut their target price from 440p to 395p. They said:
Our target price cut follows publication of our latest commodity price assumptions. Nevertheless, with 64% upside to our target price and financial risks manageable, we remain overweight.
Anglo American added 32p to 1121.5p while BHP Billiton rose 24.5p to 1392.5p. Rio Tinto recovered from early losses after weak copper production figures to close 29.5p higher at 2885.5p.
Overall the FTSE 100 finished up 34.57 points at 6620.10, its best closing level since 29 December, as investors shrugged off the IMF cutting its global growth forecasts and anticipated the prospect of quantitative easing from the European Central Bank on Thursday.
But on Wall Street the Dow Jones Industrial Average was down around 150 points by the time London closed, in the first day of trading this week following Monday’s Martin Luther King day. Another slide in the oil price hit energy shares, while there were disappointing results from Morgan Stanley and Johnson & Johnson.
Back among the UK fallers, Coca-Cola Hellenic Bottling lost 65p to £10.57 as JP Morgan Cazenove moved to neutral from overweight, citing weak markets in Russia and Nigeria. There is also the uncertainty over the outcome of this week’s Greek election.
Dixons Carphone continued its volatile run ahead of a Christmas trading update, falling 4.3p to 442.2p.
Satellite broadcaster Sky slipped 2p to 926p on reports it could be interested in a link up with UK mobile operator O2, owned by Spain’s Telefonica.
Following news that BT was in talks to buy EE for a possible £12.5bn, analysts have speculated Sky might act to gain access to a mobile operator. Now a Spanish newspaper is reporting that Sky has approached Telefonica about buying O2, although many analysts believe a tie-up is more likely than a purchase.
Even so Liberum issued a sell note following the report:
Spanish newspaper Cinco Dias is reporting that Sky has approached Telefonica over a potential purchase of UK mobile operator O2 (along with TalkTalk). If this is true, Sky has decided to commit itself to the “quad-play” route (TV, broadband, fixed telephony, mobile), which is not a proved concept in the UK market (although it has worked in, for example, France) and it would presumably mean some sort of capital raise (which would then allow Sky to maintain financial flexibility over the Premier League rights).
From a strategic standpoint, we are not sure this would fix its problem in the UK, i.e. slowing growth, a more aggressive competitor in BT (with Virgin Media also becoming more aggressive) and that it does not own its fixed-line infrastructure, which its rivals do. Final point - if Sky does buy O2, the most likely knock-on effect is a Vodafone/Virgin Media (or Liberty Global) combination, as Vodafone would be left otherwise facing two rivals both offering a credible quad-play offer - the only way to counter that would be a Vodafone/Virgin Media tie-up.
RBC Capital Markets said:
BT’s proposed acquisition of EE (over O2 UK) has triggered a potential second wave of UK consolidation, with press reports in recent days citing that Hutchison and potentially Sky and TalkTalk are looking at O2 UK. We see a Hutchison/O2 UK deal as a cleaner way out of the UK market for Telefonica and a likely route to higher cash proceeds which can be used for deleveraging. Any deal with TalkTalk, in our view, is likely to involve O2 retaining a large stake in O2 UK and long-term exposure to the UK market. Whilst, a deal with Sky, given Sky’s relatively high leverage (currently 3 times) would also leave Telefonica with limited cash proceeds and a relatively large stake in Sky, assuming Sky isn’t willing to increase overall leverage.
Vodafone meanwhile added 0.55p to 230p, while TalkTalk climbed 9.8p to 325p.
Balfour Beatty rose 1.4p to 207.5p on news it has appointed Philip Harrison of Hogg Robinson and formerly of VT Group as its new chief financial officer. The move is part of a turnaround plan at the troubled infrastructure group, which issued a string of profit warnings and recently rejected an offer from John Laing Infrastructure fund for its PFI assets. In a buy note, Liberum said:
The appointment of a chief financial officer is an important step towards rebuilding Balfour Beatty’s profitability. We expect the results of the KPMG contract review in the next couple of weeks: the market is already pricing in a substantial warning while the current market capitalisation is underpinned by the PFI business.
Elsewhere, Amazon’s decision to go into film production could be good news for Entertainment One, according to Peel Hunt. The company’s recent purchase of 51% of Grey’s Anatomy and Speed producer Mark Gordon Company was badly received by the market, but the broker believes the Amazon decision could help revive its fortunes:
This move may spark some speculative interest in Entertainment One helped by the recent share price falls that have followed the investment in Mark Gordon (a deal that lacked the opportunity for shareholder scrutiny). Whilst there is no indication we are aware of from Amazon that it wants to acquire international film distribution, certainly control of a substantial library, access to original independent content, distribution skills in multiple territories and in house content creation in both TV and Film could on paper be a logical step for Amazon or its online competitors. Building such a position (a risk to Entertainment One), as opposed to purchasing it, would take a material length of time which is a commodity that is in short supply in a fast-evolving global market place.
Entertainment One’s shares ended 3p higher at 282p.
Velocys, a gas-to-liquids specialist, edged up 0.25p to 133.5p after Chelsea football club owner Roman Abramovich bought more than 1.5m shares to take his stake - owned through his Ervington Investments vehicle - to 14.3%.
Finally Real Good Food dipped 0.75p to 36.25p after unveiling the acquisition for up to £7.5m of cake decorating product specialist Rainbow Dust Colours. House broker Shore Capital said:
We note in the commentary that this is the first of a number of initiatives designed to refocus the group’s strategy and deliver increased shareholder value. Following the announcement, we will reflect the acquisition in our forecasts in shortly but ahead of doing so, Real Good Food shares are trading on a 2015 enterprise value/EBITDA ratio of 9.4 times.
