Market Report: Merrill note drives ICI to top of the gainers list

ICI shares hit levels yesterday that were last seen at the start of 2002, after Merrill Lynch tipped the group as being capable of producing strong earnings growth in the year ahead. The US broker is convinced that there is plenty of room for another round of cost cuts at ICI. This hope drove the stock to the top of the FTSE 100 gainers list, up 9p to 344p.

The broker said: "We believe there is much more value to be extracted at the company by cutting costs and allocating resources more wisely." It sees ICI's management team as firmly focused on driving bottom line performance as opposed to top line growth, and suggested that this could leave the City's forecasts for earnings at the group looking conservative.

"We believe that ICI will probably extend its £140m cost cutting programme during 2006," said Merrill Lynch. The broker argued that if each of the group's divisions deliver on their potential it will be forced to upgrade its 2007 earnings estimates by more than 25 per cent. Given this possibility, Merrill hiked its ICI price target to 400p from 350p although it did warn that the company is vulnerable of the rising cost of raw materials.

HSBC also featured as a top blue chip performer after Citigroup turned more positive on the banking giant. HSBC is Europe's biggest bank, in fact it is the same size as the German, Greek and Irish bank sectors together, but has seen its shares underperform peers since its acquisition of US lender Household in 2002. Given this substantial de-rating of the bank, Citigroup has decided to remove its "sell" rating from the stock for the first time in four years.

There were solid gains elsewhere in the sector. HBOS added 14.5p to 975.5p, Standard Chartered rose 9p to 1,330p and Lloyds TSB ticked 2p higher to 499.75p.

The wider FTSE 100 had a positive start to the session but lost ground after US shares registered only modest gains in early New York trading. London's blue chip index finished the day 0.3 points lower at 5,731 while the FTSE 250 fell 18 to close at 8,897.2.

Merrill Lynch did the property sector no favours. Hammerson fell 36p to 981.5p, Land Securities retreated 54p to 1,577p, Great Portland lost 20.5p to 412.5p and Brixton fell 12.5p to 415.75p as the US broker downgraded its stance on the four to "neutral" from "buy". Merrill said it was worried that government plans to turn many property companies into Real Estate Investment Trusts could prove unworkable and warned that conversion charges facing many firms will be onerous.

Aviva gave up 10p to 723.5p as Credit Suisse First Boston cut its stance on the insurer to "neutral" from "outperform" and told its clients to switch into rival Prudential, off 4.5p to 573.5p.

BskyB rose 1.5p to 516p after Cazenove tipped the satellite broadcaster to post a solid set of interim figures on 1 February. The broker believes the results will show that BskyB is making good progress across the board with its Sky Plus package having gained 176,000 new customers in the last quarter.

Venture Production added 29.5p to 586p as investors responded to a note from Collins Stewart which flagged up the company's impressive cash flows. Venture is doing particularly well from the soaraway gas price. Over half of the company's output is of gas from the North Sea.

TT Electronics added 3.5p to 158.5p on news it had secured substantial new orders from the automotive industry for its Autopad sensors. This takes the total orders to date for this technology to over £100m.

At the smaller company end of the market Parity, steady at 8.75p, said its biggest shareholder, Spearhead, was considering a move to buy the whole of the company. As it stands, Spearhead owns 23.4 per cent of the services group. VTR jumped 2p to 25p as Peter Gyllenhammar, the Swedish value investor, said he had taken a 5.3 per cent shareholding in the video production group via his Bronsstadet investment vehicle. BowLeven, the oil explorer, rose a further 9p to 189p after John Brown, its finance director, bought 3,000 shares at 183p.

Equator Exploration added 30p to 330p after boasting of a gas find at its prospect in Nigeria. Global Oceanic Carriers ticked 0.25p lower to 47.75p despite a series of director share purchases. Vassilis Vintiadis, the chief executive, picked up 113,000 shares at 48.5p while its finance director, Douglas Kearney, bought 20,000 at the same price. Vanco dropped 22p to 474p after Richard Scott, a director at the telecoms group, sold 20,000 shares at 487p.

Finally, Delling, the AIM listed marketing services group, unveiled a £500,000 contract from McDonalds. The deal will see Delling, 0.5p higher at 11.25p, provide the fast food chain will all its marketing material requirements in Norway.