Market Report: Punch driven higher on trading hopes

The pubs sector was in focus last night, with Punch Taverns gaining ground as bargain-hunters piled in.

The stock rose to 84.7p, up 2.6 per cent or 2.15p, after Bank of America Merrill Lynch said the market may be overlooking the potential for upside gains as trading recovers from the depressed levels seen last year. The same was true of Enterprise Inns, the broker explained, highlighting the fact that both trade at discounts of over 60 per cent to their respective net asset values. "This means that the property would need to fall by a further 20 to 25 per cent to get to the current share price," Merrill said, helping Enterprise to rise by 3.4p to 117.4p. "Given the improvement in the property market and disposals at book value, we feel such a fall is unlikely."

The broker was also positive on Greene King, which added 14.4p to 457p, and Marston's, which rose to 90p, up 2.2p. "2010 is likely to be a challenging year for the industry, with VAT and other tax rises coupled with an uncertain macro outlook for the UK," Merrill said. "Also, the structural challenges for the pubs remain, with beer volume [declines], albeit lower ones, and ongoing pressure on rents. However, with sentiment depressed and valuations low, we think much of this is already priced in."

Overall, the FTSE 100, down 1.4 per cent or 71.73 points at 5145.74, began on a positive note, rallying to a session high of 5280.36, before falling below the 5200-point mark, while the FTSE 250 lost 31.47 points to 9213.78. Sentiment was hit by early weakness on Wall Street, where equities turned lower on the back of some disappointing jobless claims and durable goods data, and by expanded version of a recent Standard & Poor's note, which said the UK banking system was no longer amongst the most stable and low-risk in the world.

Concerns about the S&P comments sullied the mood around the banks, which began to give back gains as the session came to a close. As a result, Barclays, which touched a session high of 281.8p, up more than 5 per cent, ended 1.9p lower at 264.95p, while Royal Bank of Scotland, which swung to a high of 34.26p, up almost 4 per cent, was 1.3 per cent or 0.42p behind at 32.57p at the end of play. Lloyds Banking Group, supported by some positive comment from Deutsche Bank, almost managed to cling on to positive territory, closing broadly unchanged at 50.75p, down 0.09p. "We believe current conditions in asset markets (especially residential and commercial property) and low-risk free rates (which could stay low given slow GDP growth) favour LBG's restructuring, allowing it to term out wholesale funding at least cost," the broker said, maintaining its "buy" stance.

Elsewhere, the mining sector continued to weigh on the benchmark index, with concerns about Chinese monetary tightening refusing to go away. Xstrata was amongst the weakest here, losing 4.3 per cent or 45.5p to 1004.5p, while Antofagasta fell to 885.5p, down almost 4 per cent or 35.5p, and Vedanta Resources lost 63p to 2421p. Oil & gas issues were also unsettled, with BG easing by 16p to 1146.5p and BP, whose chief executive, Tony Hayward, yesterday said he expected oil to trade within a range of $60 to $80 per barrel during the rest of this year, retreating by 1.2 per cent or 7.1p to 587p.

The cruise operator Carnival overcame the downdraft, rising by 36p to 2272p, as traders bought in on the read-across from Royal Caribbean Cruises, which posted better than forecast results, reporting a good start to the busy "wave" season, which runs from January to March. "According to Royal Caribbean, the early 'wave booking' period has been encouraging with bookings and pricing both ahead," the Evolution analyst Nigel Parson said, repeating his "buy" stance on Carnival.

Further afield, IMI was 5p stronger at 546p after Citigroup upped its target price for the stock to 650p from 550p in an engineering sector review. The broker said UK engineering stocks offered better value than their European peers, arguing that "the downside is quite limited in nearly all cases". "Moving into what could be a strong reporting season we would highlight IMI as attractive given its low valuation on current earnings combined with still high economic recovery sensitivity," Citi added, sticking to its "buy" on IMI and upping Weir, down 2.5p at 771p, to "hold".

Also on the upside, the semiconductors group ARM Holdings touched a session high of 205p, up almost 6 per cent, before relaxing to 190.7p, down 2.9p, amid speculation about the technology used in the newly released Apple iPad. Imagination Technologies was boosted by similar hopes, rising by 6.7p to 263.5p. Although Apple is using own processor, Panmure Gordon analysts said the two companies should benefit from the device.

"It appears that this [the processor] has been designed by the PA Semi team which Apple acquired and it is extremely likely [that] it is ARM-based, like the processor in the iPhone," the broker said. "The chip also includes an integrated graphics engine which it is extremely likely based on Imagination Technologies IP [intellectual property]."