MARKET REPORT by GEOFF FOSTER: Almighty Mears mops up ruins

The former sexy support services sector was a graveyard in 2010.

FTSE 250 stocks Connaught and Rok both ended the year in the knacker's yard after getting into grave financial difficulties following public sector spending cuts.

Their demise provided a major boost to super-fit and now market leader Mears which has fed off their rotting carcasses.

Shares of the social housing and home help group advanced 6p to 312p after chief executive David Miles reported that the firm's bid pipeline remains 'robust' at £3bn, while the order book has grown to £2.7bn, giving forward visibility of consensus forecast revenues for 2011 in excess of 90 per cent and almost 80 per cent for 2012. 

Movers and shakers: Mears has taken over a number of contracts from rival Connaught and recently paid £1.5m for the social housing business assets of the Bristol division of Rok

Movers and shakers: Mears has taken over a number of contracts from rival Connaught and recently paid £1.5m for the social housing business assets of the Bristol division of Rok

Miles, who took over from Bob Holt, who remains as chairman, in November, called 2010 a 'watershed year'.

He yesterday announced a new five-year contract worth £60m with Tower Hamlets Homes to provide responsive repairs, gas servicing and breakdown cover and a £67m 10-year partnership deal with Moat Homes in South-East England.

 

Mears has taken over a number of contracts from rival Connaught and recently paid £1.5m for the social housing business assets of the Bristol division of Rok.

Miles and Holt are on the acquisition trail and want to broaden the diversity of the group's home help offering. Miles adds that Mears is well placed to lead and consolidate the domiciliary care market place which is some 10 years behind the more developed social housing market.

Analyst Guy Hewett at broker Investec raised his target price to 365p from 332p and said that the group is very well placed to grow at above-average rates.

Contract news lifted Interserve 34.5p to 268.5p. The group, which cleans British crown courts, also reported a strong second half and said trading is in line with expectations. In recent months it has won a number of contracts in the UK and across the Middle East with a combined value of around £500m.

The Footsie climbed back above 6,000 with a gain of 57.73 points to 6014.03. Eurozone debt fears were allayed somewhat by Portuguese Finance Minister Fernando dos Santos saying there was no plans to seek a bailout from the European Union and the International Monetary Fund.

Dealers were also pleased to see Wall Street climb 34.43 points to 11,671.88 following impressive fourthquarter figures from aluminium giant Alcoa.

Revived takeover gossip lifted chip maker ARM 32.5p to 497.4p. It was recently boosted by news that Microsoft intended to develop Windows-based platforms running on ARMdesigned chips.

Bluetooth chip specialist CSR soared 57p to 413p after settling a legal battle over patents with US rival Broadcom. The settlement figure is $67.5m, which will be paid over the next five years, and will be offset by a reduction in legal costs of at least $50m.

Citigroup's assertion that shares of the building materials giant could be trading at £45 in three years time helped Wolseley soar 122p to 2179p. The stock was the best performing in the broker's universe last year and it sees more outperformance to come, especially in North America.

Greenland-focused explorer Cairn Energy gushed 23.9p to 455.3p after Morgan Stanley said it was its top pick in the exploration and production sector this year. The broker said Vedanta's offer for 40 per cent-51 per cent of Cairn India, coupled with the underlying strength of the group's asset base, underpins the valuation and offers substantial downside protection.

The Treasury Select Committee's grilling of new boss Bob Diamond over future bonuses failed to deter buyers of Barclays, 15.3p betterat 292p. The bank is SG Securities' top sector pick for the year.

Profit-taking in the absence of the widelyrumoured bid from Johnson & Johnson dragged replacement hip and knee group Smith & Nephew 42p lower to 670p.
A Bryan Garnier recommendation for clients to buy ahead of the full-year results on February 1 helped Autonomy advance 14p to 1550p.

Concerns over future growth, which impacted the share price in 2010, are overdone. The group is well placed to accelerate growth going forwards.

British property and casualty insurer Amlin lost 10.7p to 392.9p. Investors exited on hearing that last year's New Zealand earthquake would cost the group £103m, more than double the initial estimate of £48m. Catlin declined 14.3p to 368.6p amid concern that the floods in Australia could prove expensive.

African Eagle Resources firmed 1.25p to 13.5p after upgrading its resources at the Dutwa nickel project in Tanzania. Seymour Pierce says buy.

News of a £24.5m bolt-on acquisition helped Ashtead rise 9.8p to 176.2p. Broker Oriel Securities gave the thumbs up to its purchase of a specialist provider of scaffolding based in the southern states of the US.

The broker believes the group has further to go as the potential leverage of the recovery in the US construction sector drives profits beyond that of the ongoing recovery in the equipment rental sector.


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