Airlines Deals

Four blue-chip firms - Rolls-Royce, Smith & Nephew, Shell and Kingfisher - posted second-quarter figures comfortably outstripping analysts’ expectations yesterday, helping spread positive sentiment across the market. The FTSE 100 index ticked up 52.4 points to 5,929.5.
Kingfisher rose 8.25p to 244.75p, despite divided opinion on the stock among analysts. Some, including the research team at Merrill Lynch, suggested yesterday’s sales figures marked the end of the DIY retailer’s recent woes. In a note entitled “Inflection point”, they noted the strong performance of the Screwfix division and the slowing decline of B&Q’s comparable sales from 8.8% to 2.4%.

“The inflection of B&Q’s like-for-like sales supports our view that the chances of a recovery should increase dramatically over the next 12 months and drive a material appreciation of the share price,” Merrill analysts concluded, rating the stock a “buy” with a price target of 270p.
In the opposite camp was Kingfisher’s joint house broker Credit Suisse, which holds a “neutral” rating on shares and a target price of 210p. “We already have a reasonable second-half sales improvement factored into our estimates and as yet we feel signs of consumer recovery are at best slight … This leaves the valuation continuing to look exposed in our view,” it said.

Elsewhere, there were less ambiguously encouraging second-quarter figures from Smith & Nephew - up 30.75p at 462.75p and top of the FTSE 100 leader board. Positive investor sentiment is seeping back into the stock after a tough nine months as management reiterated its confidence that product launches in the second half would fuel sales growth.

The group has just won regulatory approval in the US for its hip resurfacing product, designed for younger patients. A lot of bears in the stock appeared yesterday to be covering short positions. Analysts at Dresdner Kleinwort said: “We suggest investors start buying into the stock with an eye on its recovery over the second half and through 2007.”

Mining stocks were also in demand, with copper plays Kazakhmys and Antofagasta up 76p to £12.61 and 19p to 416.5p respectively. Copper prices rose 3% after riots at the Chambishi mine in Zambia and before a strike vote today at the Escondida mine in Chile. Sector peer Xstrata rose 107p to £21.41 as investors backed its intention to buy up to 5% of Canadian nickel miner Falconbridge as part of its takeover efforts.