Travis boosted by UK housing boom hopes

Travis Perkins led the London market higher as hopes of a UK housing boom caught up with the builders' merchants.

Travis jumped 3.3 per cent to £16.78 while sector peer Howden Joinery took on 4.5 per cent to 308.5p.

Expectations were for Travis to beat expectations when it delivers a trading update on Thursday.

Liberum Capital saw Travis as "a major beneficiary of rising housing activity" and noted that the company had not given its view of the market since late July.

"We can see [housing] transactions now 20 per cent ahead of last year, with strong mortgage activity showing this is sustainable," Liberum said.

While volumes are accelerating, Travis can command a valuation of more than 15 times earnings, as it did in the mid-1990s house-price boom, said the broker, which raised its target price to £19.

Otherwise, Royal Mail's flotation dominated attention with the stock jumping 38 per cent at 455p. More than 231m shares had changed hands by the end of the first day, equivalent to around 90 per cent of its free float.

Hargreaves Lansdown, whose website and phone dealing systems were overwhelmed by retail investors trying to trade their Royal Mail allocations, slipped 0.2 per cent to 993p.

The FTSE 100 rallied 56.7 points, or 0.9 per cent to 6,487.19. For the week, the index was up 0.5 per cent.

Whitbread advanced 3.1 per cent to £32.10 amid a recycling of talk that it was moving towards spinning off its Costa coffee chain.

With Whitbread scheduled in December to host its first Costa investor day in more than two years, dealers saw the talk as predictable but premature.

Citigroup upgraded the Premier Inn owner to "buy".

"Given its predominantly domestic exposure, Whitbread is best exposed to the expected rapid economic recovery that we think is under way in the UK," it said.

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While key rival Travelodge was leading the UK market recovery, "3 per cent expected GDP growth in 2014 should be a powerful stimulus for the overall hotel market and we do not expect Whitbread to be immune", it said.

Diageo was up 2.7 per cent to £19.73. Exane BNP Paribas advised clients to switch out of Penod based on Diageo's better positioning in the expanding US market for premium spirits.

Chemicals maker Croda led the blue-chip fallers, down 4.8 per cent to £24.77, after a downgrade from JPMorgan Cazenove.

"Whilst we expect underlying trading has improved in the third quarter, a combination of negative currencies and over-optimistic consensus could lead to disappointment in the short run," said the broker.

Currency weakness was likely to have held back key emerging markets such as India and Japan while developed markets remained slow, meaning forecast of quarterly sales growth was likely to be nearer 4 per cent rather than the 7 per cent the market expects, it said.

Chemring dropped 22.6 per cent to 220p after multi-part profit warning from the flak and flare maker, which raised concerns about the strength of its balance sheet.

Chemring blamed a relapse of production issues as well as the US shutdown, sterling's strength and problems shipping munitions to Middle East customers.

The warning triggered profit taking in BAE Systems, which slipped 3.2 per cent to 436.3p.

BAE this week played down hopes it can secure a jet fighter contract from Saudi Arabia by the end of the year, optimism around which had helped lift the stock 30 per cent in the year to date.

N Brown rebounded 5.5 per cent to 502p, recovering from poorly received interim results on Wednesday where the catalogue retailer surprised investors by giving no new details on its international expansion plans.

That disappointment eclipsed encouraging news on current trading, said HSBC, which had a 560p target price on the stock.

Kenmare Resources slipped 11.7 per cent to 25.7p. Unexpectedly weak pricing, falling shipments and a production shortfall forced the titanium miner to raise $106m with a share placing and warrant sale.

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