Market Report: Reckitt Benckiser rallies on buy-back hopes

Reckitt Benckiser bucked the negative trend in the market yesterday with a little help from Lehman Brothers.

The US broker is convinced that second-quarter results from the household goods giant will impress investors and predicted the group wouldupgrade its earnings forecasts for the full year. Such talk sent Reckitt shares 19p higher to 1,637p, while the wider FTSE 100 retreated 35 points to close at 5,043.

Lehman also believes that investors should not be surprised to see the group unveil a new, bigger share buy-back programme running through to the end of 2006 along with a strong pipeline of innovations. The US broker estimates the buy-back could be worth up to £230m.

As for those who are worried about Reckitt being negatively impacted by the high price of oil, Lehman urges them not to be. It points out that the company is well-hedged against the soaring price of crude for this year and next.

Recent speculation has suggested that Reckitt might be tempted to bid for Boots Healthcare International. The retailer put the business up for sale in April and, according to Lehman, acquiring it makes sense for the household goods manufacturer and could prompt a major catalyst for a jump in its share price.

The US broker notes that Reckitt has the balance sheet to finance such a deal.

Among the 15 other blue chips to register gains yesterday, Shell, 7p higher to 528p, BOC, 10p higher to 1,046p, and Centrica, 1.5p stronger to 234p, were the top performers. BHP Billiton put on 7.5p to 704.5p after Deutsche Bank upgraded the mining giant to "buy" from "hold" and raised its earnings forecasts by 13 per cent for 2006.

The strong crude price continued to weigh on sentiment towards equities on both sides of the Atlantic. As ever, airlines suffered. British Airways was the worst hit in London, falling 15p to 260.75p. WestLB did the stock no favours by cutting its rating to "neutral" from "outperform". It believes BA shares are unlikely to make much progress if the price of oil continues to trade at current levels. Meanwhile, easyJet fell 2.5p to 236.5p while Ryanair dropped €0.12 to €6.34.

Cadbury Schweppes gave up 8.5p to 530.5p as the latest market share data from the US showed that the soft drinks group continues to lose market share to its rival Coca-Cola. Cadbury suffered a 1.4 per cent fall in Dr Pepper/7Up volumes in the four weeks to June. This came on top of a 1 per cent fall during the previous four weeks.

Morgan Stanley predicts this summer is going to be a tough one for the group's soft-drinks brands as rivals Coca-Cola and Pepsi go on the marketing offensive. This could have a significant impact Cadbury's earnings because it generates one-quarter of its operating profits from fizzy drinks sales.

Hays lost 2p to 125.75p amid nervousness in advance of today's trading update from the recruitment group. There is growing concern among analysts in the City that the UK recruitment market - key to Hays - will gradually slow over the next 12 months. Rank retreated 0.75p to 268.5p as Credit Suisse First Boston told its clients to ignore recent reports which suggested that the leisure conglomerate will sell its Deluxe Media unit for £50m. The Swiss broker insisted that £20m was a much more realistic price.

Walker Greenbank added 0.75p to 13p after four directors at the wallpaper and textiles group bought shares. A total of 340,000 were picked up by executives at the company who paid 12p a share. The news comes after last week's trading update which seemed to indicate that a turnaround is under way at the company.

Avanti ScreenMedia added5p to 235p, as brokers drew investors' attention to the fact that the company will generate £3m in advertising from Friday's contract with the shopping centres owner Mall Limited. This comes on top of the £3m value of the deal, in which Avanti will establish a network of TV displays across the 22 UK shopping centres run by Mall Limited.

Elsewhere, brokers were eagerly awaiting today's float of System C Healthcare. The IT solutions provider to the healthcare industry plans to raise £10m from its IPO, which at 54p is believed to have been heavily oversubscribed.

Finally, gossips hinted that a US predator may be circling Epic Group, unchanged at 66.5p. The online learning specialist certainly looks vulnerable after February's profits warning sent its shares tumbling. Nevertheless, Epic, which is cash-rich and profitable, is in the process of returning some of it to shareholders.

Since the setback at the start of the year, most of the group's directors have topped up their holdings in the group.