Market Report: Halfords is revving up after UBS boost

Investors piled into Halfords yesterday following an upgrade from analysts at UBS, which sent shares in the car repair-to-bikes retailer racing up 19p to 329p. The company has had a mixed time of late and last week admitted profits will fall over the next two years while it invests £100m to turn around its performance.

Matt Davies, the former boss of Pets at Home, who joined Halfords last October, said that about half of this investment would be spent on refurbishing its stores, which customers have criticised for being “tired” looking, often short of stock and offering “variable” levels of service.

However, UBS still seemed convinced about the company’s potential: “Halfords is a brand with high market share in its core markets, good resonance with consumers, and finally is undertaking some of the investment required to succeed as a specialist retailer,” its analysts said.

“The level of investment required, in addition to the dividend cut, came as a surprise, but we consider that this will put Halfords on a path to sustainable earnings growth in the medium term.”

Higher up the scale, investors flirted with Smiths Group shares after the company admitted it had received an approach for its medical division, which some reckon could fetch a cool £2bn.

The FTSE 100 engineering group said it was in “early-stage” talks with an unnamed suitor, believed to be United States healthcare group CareFusion. The division, which made about 35 per cent of the group’s operating profit last year, supplies equipment to hospitals and emergency services.

Most of its products are manufactured in the US, Britain, Mexico and Italy. Shares in the company rose more than 3 per cent at one stage before falling back 11p to 1379p.

Smiths was one of the standout performers on a rather uninspiring day of trading on the London Stock Exchange. The FTSE 100 index fell 73.9 points to 6,583.09 and the wider FTSE 250 lost 91.82 points to 14,350.92.

Despite the drop, experts said we have not yet seen the back of the market rally, which has seen the Footsie threaten to break through its all-time high of 6,930.20.

“On balance, I think we are stabilising now,” said Peter Garnry, a strategist at Saxo Bank. “I still think if we look in the medium term, the momentum in equities is still intact, valuations are still benign and there is still an interest to get exposure to equities. For this momentum to stop, it would require some kind of a political or market hiccup in Europe.”

Insurers Old Mutual, Legal & General, Standard Life and Prudential were among the biggest fallers on the market.

Further down the scale, Gem Diamonds’ shares were in sparkling form after the miner sold a 164-carat diamond for $9m (£6m). The company said the precious stone was discovered at its flagship Letseng mine in Lesotho last month. The shares rose 3p to 140p.

“The recovery and sale of this high-quality white diamond reinforces Letseng’s position as the premier source of exceptional diamonds,” its chief executive Clifford Elphick said.

The diamond will almost certainly head to Antwerp. It is reckoned that 70 per cent of the world’s diamonds pass through three streets in the Belgian city, which is the world’s largest diamond-dealing centre.

Gem Diamonds said that another gem discovered at the mine, a 103-carat diamond, which is not of the same high quality as the 164-carat one, will be sold next month. News of the sale came after brokers at Liberum reiterated a “buy” call on the stock earlier this week.

“We reiterate Gem Diamonds as our top pick within the small to mid-cap miners, with the diamond market showing stronger signals of a structured recovery,” Liberum said.

Elsewhere, film distribution group Metrodome said it planned to delist from London’s junior AIM. The company, whose films include A Royal Affair, starring Mads Mikkelsen and Alicia Vikander, will seek shareholder approval from investors at its annual meeting on 25 June.

Looking ahead to the next few working days, Nick Lewis, head of risk at Capital Spreads, was upbeat. “Perhaps next week, with a plethora of US economic data due to be released, culminating in the non-farm payroll numbers next Friday, the market can pick out some clearer direction,” he said.

Buy

Harvey Nash

Pile into Harvey Nash, if you want to follow the advice of Numis’s Steve Woolf. He notes the recruiter’s fourth-quarter figures yesterday showed “trading trends remain unchanged from the update a month ago” and has stuck to his “buy” rating and 90p price target (the stock is currently 72p). Saying “there is greater value in the niche/specialist staffers”, he adds that Harvey Nash’s shares are “looking attractive as further optimism of recovery continues to drip into the market.”

Sell

Wolseley

Ditch Wolseley, is the call from Panmure Gordon. The heating and plumbing giant releases its third-quarter figures next Tuesday and the broker’s analyst, Andy Brown, kept his “sell” advice and 2,500p target price for shares trading at 3,378p. He believes “the valuation is up with events and uncertainty surrounding its European operations is more likely to cause a negative surprise”.

Hold

LondonMetric

Keep LondonMetric, says Oriel Securities. After the newly merged property company’s full-year results yesterday, the broker reiterated its “hold” recommendation. While pointing out the shares have underperformed the sector and the market in 2013, it adds this “is likely to continue until the combined business/management gains a stronger following and the dividend cover is restored”.