Market Report: L&G tumbles after SocGen urges 'sell'

Legal & General was languishing at the bottom of the benchmark index last night after Société Générale weighed in, scaling back its earnings estimates and moving the stock to "sell".

The broker said the shares, which have performed strongly in the recent equity market rally, merited a discount firstly because of the company's exposure to equities and, secondly, because of its provisions against bond defaults. "The rebound in equity markets has reduced the risk of a capital increase but L&G still has the highest exposure to equities among the UK life stocks were cover," SocGen said. "In addition, L&G has lower provisions against bond defaults."

Lowering its 2009 earnings estimates by 81 per cent, and 2010 estimates by 21 per cent, the broker added that it expected the company to "struggle in savings products as a result of lower asset balances, which in turn generate lower fees (and this despite its increased focus on reducing costs)".

The assessment undermined sentiment around the stock, which took the wooden spoon on the FTSE 100, falling by 7.9 per cent, or 4.77p, to 55.83p.

Overall, it was a quiet day on the FTSE 100, which was down 4.03 points at 4,230.02, and the FTSE 250, which rose by 18.12 points to close broadly unchanged at at 7,192.96.

Over in the mining sector, merger talk did the rounds again as speculators suggested that Anglo American, which earlier this week turned down Xstrata's "merger of equals" proposal, might end up as a target for China's Chinalco – which was said to be considering a 2,200p per share bid – or Brazil's Vale, with traders attributing little credence to either theory. Anglo closed down 46p at 1,652p as analysts weighed in on its rejection. Nomura said that while the response was as expected, it was "surprised at Anglo's somewhat aggressive response regarding the proposed combination's lack of strategic merit".

"Following Anglo's rejection, we feel Xstrata's best course of action is to continue to try to engage Anglo's board and wait to gauge reaction of both sets of shareholders to Anglo's rejection statement," the broker added.

At the close, Xstrata was 4.8p ahead at 639.9p. The wider mining sector was firm, as a number of leading stocks pared Monday's losses. Antofagasta, the Chilean copper miner, ended almost 4 per cent, or 21.5p, stronger at 576.5p and the Eurasian Natural Resources Corporation climbed 22p, or 3.7 per cent, to 620p.

Elsewhere, the financial information group Thomson Reuters gained 3.6 per cent, or 59p, to reach 1690p after the it proposed ditching its London Stock Exchange and Nasdaq listings. Thomson plans to maintain its listing on the Toronto Stock Exchange and the New York Stock Exchange.

In response, Charles Stanley, which maintains a "reduce" recommendation on the stock, said it believed a key motivation behind the move was "ongoing frustration over the persistent discount at which the London listed shares have traded to the New York/Toronto listed shares".

On the downside, banks, including Lloyds, down 2.85p at 65p, and Royal Bank of Scotland, down 0.76p at 35.19p, were generally weak as traders focused on remarks by the chairman of the Financial Services Authority, Lord Adair Turner, to the Commons Treasury Select Committee.

Standard Chartered, down 40p at 1,135p, was also unsettled, despite words of support from Collins Stewart, which issued a "buy" note on the stock, saying the bank's upcoming pre-close trading update should reaffirm its position as a "long-term winner".

Further afield, on the FTSE 250, pubs group Marston's was almost 6 per cent, or 7p, weaker at 112p. Altium Securities moved the stock to "sell", saying the dilution caused by the company's rights issue was "too high a price for accelerated organic growth".

Altium said it preferred rival group Greene King, which was 3.5p behind at 366.75p. "We have no issue with what Marston's intends to do with the funds raised, just the cost of raising them," the broker said. "The level of discount alongside the proposed 110 per cent increase in the number of shares seems too high a price to pay for what appears to be predominantly an increase in organic development."

On the upside, JD Wetherspoon rose by almost 6 per cent, or 22p, to 391.5p after Morgan Stanley issued a double upgrade, moving the stock to "overweight" from "underweight". "We see it as a long-term winner in the pub industry, and with the shares off 18 per cent in the last three months, we think the refinancing risks are well reflected in the price," the broker said.

"Its market share gains are accelerating, and we expect it to continue to generate 2 to 3 per cent like-for-like sales growth in the medium term, enough to drive consistent double- digit earnings growth."

The broker also boosted the luxury goods retailer Burberry, which was 3.5 per cent, or 12.7p, higher at 382.25p. Moving the stock to "overweight" from "equal weight", Morgan Stanley said the company was well placed to "take share in a fragmented market as its brand position will make it more attractive versus high-end luxury peers".