City confidence that a $1.15 billion American acquisition could deliver more benefits than first thought lifted DS Smith, the European packaging specialist. Shares in the company rose 7½p to 488p after Berenberg branded them “too cheap” and upgraded them from “hold” to “buy”.
Analysts at the German bank argued that DS Smith had a track record of “under-promising and over-delivering” with synergies in the wake of takeovers and suggested that expanding its presence inAmerica creates scope for further growth. DS Smith agreed to buy an 80 per cent stake in Interstate Resources, a Virginia-based peer, in June.
Berenberg told its clients: “The proposed . . . acquisition of Interstate Resources offers DS Smith exposure to the US corrugated packaging market and the potential for significant synergy realisation — initially flagged at a $25 million run rate. However, we believe there is potential for more.” The bank lifted its target price from 486p to 550p.
Sterling fell after the Bank of England held interest rates and lowered its growth forecasts, lifting London’s premier index. The FTSE 100 finished up 63.34 points, or 0.85 per cent, at 7,474.77.
Next was in vogue after quarterly sales growth returned at the fashion retailer. Michael Roney, its new chairman, took the opportunity to snap up almost £400,000 worth of shares at £43.86½ per share. The chain gained 388p to £44.01, lifting peers on the high street. Marks & Spencer put on 4p to 329¼p and Associated British Foods, the company behind Primark, climbed 61p to £30.72. Asos, an AIM-listed digital rival, advanced 42p to £58.96, while Burberry Group strutted 36p higher to £17.68 at the luxury end of the sector.
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Randgold Resources also glistened after revealing a 53 per cent jump in half-year profits. The gold producer rose 240p to £72.35 on a buoyant day for heavyweight miners. Anglo American increased 27p to £12.54½ as Rio Tinto, which struggled after reporting earlier in the week, recovered by 83½p to £34.86½.
At the other end of the index, Convatec was down after announcing a fall in profits and the departure of its chief financial officer. The medical technology group, which floated just over nine months ago, dropped 19¾p to 289¼p.
In the mid-caps, Cobham rallied 11¼p to 145¼p, showing signs of recovery after warning over profits in February for the fifth time in just over a year. Carillion also continued to edge higher after its shares plummeted last month. It closed up 3¾p at 57½p. The FTSE 250 put on 66.83 points, or 0.34 per cent, to finish at 19,908.24.
On AIM, Purplebricks was in recovery mode after allegations that it had misled customers knocked it down 7 per cent in Wednesday. Shares in the online estate agency gained 17¾p to 456½p as it sought to reassure the market. The BBC reported that the company had claimed in email marketing over the past year that an average of £4,158 could be saved by using its services — a figure banned by the advertising regulator last September as erroneous.
Michael Bruce, the company’s chief executive, said “lots” of consumers would have received emails with the claim but declined to provide a specific estimate. Asked why the Advertising Standards Authority had been forced to rule against six Purplebricks claims in the past 12 months, he said that “any time at all is regretful,” adding: “You won’t see the same issues arise ever again.”
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Wall Street report
By the slimmest of margins the Dow Jones industrial average recorded its seventh successive record close after a rise of 9.86 points to 22,026.10 ahead of today’s US jobs numbers which will give clues on the health of the world’s largest economy.
Consumer Goods
Smoke signals are positive
Tobacco stocks lit up the FTSE 100 as brokers continued to reject fears that regulators could cut the amount of nicotine in cigarettes. The US Food and Drug Administration raised concerns over a possible intervention last week after saying it planned to reduce tobacco-related illness significantly by lowering nicotine levels.
The FDA sparked a sell-off in which British American Tobacco tumbled 11 per cent and Imperial Brands shed 9 per cent. Yesterday, however, they closed up 150p to £50.04 and 100½p to £33.05½ respectively.
JP Morgan Cazenove analysts urged clients to buy BAT. “Bigger picture, we do not see the FDA’s landmark decision as a frontal attack on the industry, but rather an attempt to . . . encourage developing lower-risk offerings,” analysts said.
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“We believe the new BAT offers a unique balance between top-line growth, high and improving margins, coupled with best-in-class cashflow metrics,” they added, in the wake of its $49 billion puchase of Reynolds American.
The American investment bank expects BAT to be the “fastest-growing EU big-cap staples company” next year.