Market Report: Tomkins rises as broker points to a bargain

The engineering group Tomkins was among the gainers as the London market rebounded last night, rising by more than 7 per cent on the view that the recent run of weakness had been overdone.

Bank of America-Merrill Lynch said Tomkins had been the weakest of the European sector constituents under its coverage, suffering double-digit declines relative to its peers over the past three months, despite improving trends in the key US automotive, residential and industrial end markets.

The slide is also at odds with expectations for next week's interim management statement, with Merrill anticipating a confident tone, and with the news from the recent capital markets day, when the company noted that restructuring initiatives had exceeded its expectations.

"Given that end markets have clearly troughed, a valuation discounting further weakness offers upside potential, in our view," the broker said. "Management also target higher margins over the next cycle, aiming for 12 per cent in 'normalised' end markets, supporting a higher future sales multiple."

It upgraded its stance on Tomkins to "buy", helping the stock to climb by 11.2p to 167.7p

Overall, the FTSE 100 was firm, rising by 57.3 points to 5,137.72, and the FTSE 250 rose 112.91 to 8,962.41 amid relief at the latest US GDP report. Official figures revealed that the world's largest economy had finally swung out of recession, growing at a better than anticipated annual pace of 3.5 per cent between July and September.

Royal Dutch Shell proved a drag on the benchmark index, falling 55p to 1856p as investors sold out after its third-quarter results. Collins Stewart said that while the figures were "solid", the market's reaction reflected the "lack of a major positive earnings surprise of the order of that seen from BP", which was 2.1p stronger at 586.5p at the end of play. BG was 3p weaker at 1092p.

On the upside, the news from the US reignited hopes of recovery, which drove up the mining sector. Xstrata rebounded by 65p to 947p and Anglo American gained 122p at 2300p. The latter was supported by Morgan Stanley, which revised its stance from "equal weight" to "overweight". The broker also revised its target price from 2345p to 2819p, saying that the market was overlooking the value of the Anglo's non-platinum businesses.

The banks also bounced back, with Lloyds Banking Group vaulting to 86p, up a healthy 7.5 per cent or 6p, after confirming that it was looking at plans to raise funds as it considers alternatives to participating in the Government's asset protection scheme. Royal Bank of Scotland was also stronger, rising 3.77p to 43.37p as bargain-hunters piled in. The stock was helped by UBS, which weighed in on the read-across from the Dutch bank ING which, under pressure from European regulators seeking changes in return for state aid, announced far-reaching restructuring plans.

The broker said the European Commission appeared to be placing a premium on "viability", an issue best captured by two questions: "can you easily explain what you do?' and "if 2008 recurred, why would you not need state aid again?". UBS said: "We believe the answers set a high benchmark for RBS, though one that the company is addressing head-on through aggressive restructuring and balance sheet reductions."

Elsewhere, Deutsche Bank lifted the sentiment around the data centre specialist Telecity, which closed 5.4p higher at 337.9p after the broker raised its stance to "buy" and revised its target price from 345p to 400p.

Deutsche said Telecity's interim management statement next week should support the case for revenue and profit growth, as trends remain robust. Moreover, the picture should improve as the economy recovers and IT budget purse-strings are loosened.

"In addition, recent mergers and acquisitions activity in the US suggests to us that industry leaders still see unrecognised value in quoted assets," the broker added, forecasting year-on-year revenue growth at Telecity of 23 per cent in the second half of the year.

Further afield, the fund manager Bluebay Asset Management shrugged off a new Credit Suisse circular and climbed 18.7p, to 373p, despite the broker suggesting it was time to bank profits. "Although we believe the medium-term asset-gathering story is attractive, in the near term the Bluebay share price is now up with events," the broker said, revising its stance from "outperform" to "neutral" with a 12-month target price of 405p, up from 300p previously. The FTSE 100-listed fund manager Schroders also gained ground, rising by 28p to 1129p after being moved to "outperform" by the same broker.

"With the majority of assets under management in equities, Schroders is highly geared to equity markets," Credit Suisse explained in a note. "Moreover, we believe the company is uniquely positioned to benefit from the rising risk appetite and the extremely low interest rates, given the strong demand for its corporate bond funds and our expectation of an improvement in net inflows into its equities funds."