Merrill Lynch Buy Call Gives Severn Trent a Lift

By MICKEY CLARK

WATER supplier Severn Trent was among the best blue-chip performers today, gaining 9p to 1432p after Merrill Lynch raised the shares from neutral to buy with a target of 1502p.

Merrill says the shares, now trading 12% below their December peaks, have fallen too far. It adds that the company is likely to deliver reliable returns through to 2010, notwithstanding outstanding regulatory issues. The broker believes the weakness in the shares has again exposed an attractive entry level into the group.

Shares generally climbed back above 6000, but only just. Investors took their lead from Wall Street’s strong overnight performance. But volumes were low, with the bears continuing to feel the pain as prices were squeezed higher.

The FTSE 100 index was up 0.8 at 6000.3.

The City gave a cautious thumbs- up to Persimmon , 10p ahead at 773 1/2 p, after its results, which mark the start of the housebuilders’ dividend-reporting season.

Taylor Wimpey rose 1.6p to 174.7p and Berkeley was up 32p at 1136p.

Morgan Stanley has begun coverage of ARM Holdings , off 3 4 p at 99 1/4 p, with an equalweight rating and a 98p target.

It says consensus earnings forecasts are at risk in coming quarters because of slowing growth in the semiconductor industry. The microchip designer is dependent on consumer end-markets, making it susceptible to a slowdown in demand.

But the broker still views ARM as a core long-term technology holding, given its robust earnings growth outlook and leading position in the semiconductor intellectual property arena.

Although Morgan set its target price at 98p, it thinks a more attractive level to buy the shares would be closer to 80p.

Altona Resources, down 0.12p at 5.62p, is raising Pounds 11.6 million by selling 240 million new shares to Tongjiang International Energy. The energy company said it will use the funds to complete the final stage of the bankable feasibility study for its 10 million barrels-a-year coal-to-liquids and 560MW co-power generation Arckaringa project in South Australia.

AIM- listed Platinum Australia rose 5p to 142 1/2 p after publishing positive drilling results from its Kalahari platinum (Kalplats) project in South Africa.

The company says the results showed continued wide zones of good- grade mineralisation. Results from the Serpens North deposit also revealed good continuity of mineralisation. Under a joint-venture agreement, Platinum Australia is earning up to 49% of the Kalplats project from African Rainbow Minerals Platinum.

New York shares put in their best performance for almost a month overnight after credit rating agency Standard & Poor’s reaffirmed triple-ratings on troubled monoline bond insurers Ambac and MBIA.

S& P also removed MBIA from Credit- Watch, which means it is no longer in danger of losing its premium rating, and its shares leapt almost 20% to $14.58.

The agency warned that Ambac’s triple- A rating is still at risk, but the shares rose 16% to $12.41.

Industrials, drugs and energy stocks also posted gains, and the Dow closed up 189.20 at 12,570.22.

Far East share trading was mixed.

Tokyo shares gave back some of yesterday’s gains as investors took profits.

The Nikkei Average ended down 89.85 points at 13,824.72.

Hong Kong blue-chips gained, led by HSBC, which responded positively to the news that S& P is removing the threat to downgrade the US bond insurers.

Steel companies made further gains after China’s Baosteel said it would raise product prices by up to 20%. The Hang Seng index finished up 445.61 at 23,714.75..

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