Market update - 9 July

The FTSE 100 was up 72 points at 5512.5 at 11.22am with financial stocks, buoyed by bargain hunting and positive comments from Federal Reserve chairman Ben Bernanke, dominating the leader board.

The London Stock Exchange was the strongest and climbed by almost 11 per cent or 72p to 743p posting a positive update: the company reported an 8 per cent rise in first quarter revenue, demonstrating strength in the face of mounting market turmoil. Among the banks, Lloyds TSB fared the best, up 18.25p at 304p, and rose to second place on the leader board. The Royal Bank of Scotland, at fourth place, was stronger by 10.6p at 205.5p and Barclays swung comfortably past its 282p per share capital raising offer price, up 14p at 293p.

Moving up

FTSE 250-listed Bradford & Bingley edged up 2p to 36p – the stock, which slumped by more than 19 per cent last night, remains below the bank’s 55p per share rights issue offer price.

Deutsche Bank, whose analysts reduced their target price to 20p this morning, said that unless wholesale funding markets normalise, it found it hard to see how B&B can profitably fund new lending.

“Though short term B&B has the benefit of an underwritten rights issue and a £2bn committed secured funding facility which had not been drawn by 2 June, we do not see how B&B can return to profitable lending given the current cost of debt”, the broker said, adding:

“Our revised target price of 20p is a weighted average of the 40p value we derive for the business as a going concern and the minimal value we believe would be offered to current shareholders in the event of a distressed sale.”

Like the banks, the house builders rallied as investors returned. Bargain hunting offset the impact of uninspiring trading statements from Bovis Homes, which was up 4p at 321.5p, and Redrow, which was up 4p at 321.5p. In the wider sector, Barratt Developments was up 8p at 47p and Taylor Wimpey climbed by 4.25p to 30.25p.

Southern Cross Healthcare led the FTSE 250, up 22.55 per cent or 19p at 103.25p, following reports of bid interest from private equity. Blackstone, Apax Partners and Cinven were mooted as potential bidders for the care home operator.

Moving down

Advertising group WPP was down 2.53 per cent or 11.75p at 452.25p after it launched a hostile £1.08bn bid for Taylor Nelson Sofres, the market research group which has agreed to merge with Germany’s GfK.

Reacting to the move, Landsbanki reiterated its hold rating on TNS and said: “Given TNS' robust stance on shareholder support we would expect GfK to focus on the TNS vote on the merger original terms before mounting a rival bid. At this point the shares should trade at a discount to the 260.6p offer if and until the WPP bid is formalised on the 18th and to factor a WPP share price fade (the deal is not EPS enhancing until 2011 and the offer has been effectively made without key information if you believe WPP management's line of thinking). This is effectively where the share trade anyway…The cash price in the market is still relatively attractive in a volatile market and given the compound conditionality of this bid.”

TNS was up 13.75p at 5.54 per cent at 261.75p.

Also on the downside, FTSE 250-listed Hochschild Mining was down 18.75p at 317.5p after downgraded the stock to “in-line”.

“We are downgrading our recommendation on Hochschild to IN-LINE following a recent analyst presentation,” the broker said, adding:

“The presentation highlighted a number of issues, including costs and grades, which have led to us adjusting our numbers. We recognise that Hochschild has fallen quite heavily over the past week (down 12 per cent) and should participate in any sector bounce. However, our downgrade is predicated on relative valuation and we believe there is more attractive precious metals’ exposure in the sector at the moment.”