Market report: Monday Close

BRITISH Airways came down to earth today as investors worried about its ability to pass on soaring energy costs to travellers via an increased fuel surcharge. As the price of barrel of crude oil hit new highs, BA fell 15p to 260¾p, making it the weakest blue-chip performer.

Broker WestLB downgraded the flag-carrier to neutral after promoting it to outperform last month. It blamed the 'ongoing high oil price' for the abrupt change, saying it was overshadowing a healthy growth in passenger numbers.

Some companies will bear the burden of higher oil prices more lightly than others. The trick is identifying them. Household cleaning products group Reckitt Benckiser is a heavy user of oil-related raw products but analysts at Lehman Brothers reckon it has taken sensible precautions against future oil price rises, having hedged more than 75% of the oil-derived materials needed for 2005.

The Anglo-Dutch manufacturer jumped 19p to 1637p after Lehman said recent weakness in the shares made the group look cheap compared with its peers.

Reckitt was among a handful of blue-chips to post gains today as the main index surrendered to general worries over spiralling oil costs and corporate profitability.

The FTSE 100 dipped 35.5 points to 5043.5. On Wall Street, the Dow was 62.4 points lower at 10,297.84, with the Nasdaq down 1.92 points to 2051.35.

With franchise renewals due later this week, the spotlight was on media companies. ITV, down 2p at 115p, was one of the most heavily traded stocks today as broker Deutsche Bank upgraded the company to buy from hold and set a new target price of 140p. Deutsche thinks the ITV franchise is more robust than is currently believed by the market and says: 'The upside from removing public service broadcasting opportunity costs is real but is not reflected in the way ITV is valued.'

Rival broker Numis predicts that ITV will make a saving of about £107m in 2005 in terms of licence fees, and rates it a buy at 116p. Numis thinks ITV will benefit from broadcasting more commercial programmes and will gain greater programming flexibility.

However, Bear Sterns reckons the company will be hit by a slump in advertising spending and forecasts an ad spend loss of 8% in 2006.

Banks and insurance stocks suffered in the general rout with Royal & SunAlliance off 1½p at 80¾p, Schroders down 15½p at 754½p and Royal Bank of Scotland 21p lower at 1696p.

Building supplies group BPB, down 2p at 528p, was hit by news French rival Lafarge is investing €300m (£199m) to boost its plasterboard production by 20%. Lafarge will enter into direct competition with BPB in South Africa, the Ukraine and Algeria.

The smaller oil explorers and producers made gains on the back of the oil price, led by Soco International, up 15½p at 570½p and Burren Energy, 12½p higher at 683p.

City sources are optimistic about the possibility of Punch Taverns, up 6p at 707½p, buying rival pubs group Spirit. Punch is thought to have made overtures to private equityowned Spirit earlier this year and an announcement could be near.

But owners Texas Pacific, Blackstone and CVC Capital are already considering an independent stock market listing for Spirit. Mitchells & Butlers, up 2½p to 331p, would be interested in buying some of the betterknown managed pubs in the group.

The FTSE 100 dipped 35.5 points to 5043.5. On Wall Street, the Dow was 62.4 points lower at 10,297.84, with the Nasdaq down 1.92 points to 2051.35.

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