Air show optimism aids Rolls-Royce

Rolls-Royce led the way on Thursday as the FTSE 100 climbed to its highest level in more than two months.

A surge in demand at the Farnborough air show bolstered optimism that Rolls-Royce would deliver positive guidance at its results next week.

Boeing and Airbus have secured a total of 356 large aircraft orders and commitments during the show, doubling the 2010 pipeline, according to UBS. Renewed demand and financing availability prompted a return of aircraft leasing companies, which provided nearly half of the orders, it said.

Shares in Rolls-Royce jumped 5.5 per cent 611½p, the sharpest daily gain since November. The jet engine maker is due to post interim results next Thursday. Analysts expect both revenues and underlying earnings to be flat on a year ago.

“The recovery in air traffic and in aircraft orders are positive signs that will undoubtedly help to offset the negative impact of budgetary restrictions in defence in the UK over the next few years,” CM-CIC Securities said.

The wider market took its lead from Wall Street’s rally. The FTSE 100 ended higher by 99.17 points, or 1.9 per cent, at 5,313.81.

Invensys was squeezed up by 5.2 per cent to 295p amid a retread of talk that it could be attractive to a rival such as Siemens. The engineer has risen by 22 per cent this month, rebounding from a one-year low as concerns eased about rail spending, particularly in its core Spanish market.

Better than expected UK retail sales data for June helped Marks and Spencer and Next both rise 2.4 per cent – to 353½p and £21.85 respectively.

Kingfisher was ahead by 0.8 per cent at 225¼p following a mixed trading update, with a strong performance in France compensating for UK weakness.

Carnival gained 4.4 per cent to £23.06 after main rival Royal Caribbean Cruises raised earnings guidance. Starwood Hotels also lifted its 2010 outlook, helping Intercontinental Hotels take on 2.1 per cent to £11.60.

Capita rallied 3.8 per cent to 737p after management used meetings following its in-line interim results to emphasise that it saw public service cost cutting as an opportunity rather than a threat.

Serco gained 4.5 per cent to 564p even after the Home Office terminated a contract due to the poor performance of the prime contractor, Raytheon. Analysts said sub-contractors were unlikely to be affected by the a change of prime supplier for the contract, which was worth about £10m in revenue to Serco.

Autonomy led the blue-chip fallers, tumbling 9.1 per cent to £16.49 after its interim earnings and operating margins missed market forecasts. The stock recovered from a session low of £15.52 amid talk of demand from US institutions.

Imperial Tobacco’s results also disappointed the market. The shares ended lower by 2.9 per cent at £18.53.

Royal Bank of Scotland was the laggard in an otherwise strong banking sector, losing 1.1 per cent to 44¾p. The Treasury’s Asset Protection Agency said in its annual report there was a “reasonable chance” that RBS would need additional state support.

Among the mid-caps, Tomkins crept up 2.4 per cent to 307¼p on suggestions that its takeover offer could be formalised as early as next week. The engineering group said on Monday that Inex Corporation and the Canada Pension Plan Investment Board had made an approach priced at 325p a share and due diligence was at an “advanced stage”.

Similar rumours were doing the rounds about Dana Petroleum , which rose 2 per cent to £15.05 on hopes of an offer from KNOC of South Korea. That was in spite of a downgrade to “neutral” from Goldman Sachs, which saw more value in Dana’s peers.

Dimension Data , which has recommended a 120p offer from NTT, gained 0.9 per cent to 124½p as a rumour circulated late in the day about a potential counter-bid from an Indian IT services company.

Wellstream rose 4.4 per cent to 472p after Schroders raised its stake in the oil pipe maker to 11.1 per cent.