Market report: Wednesday close

By Mickey Clark for MailOnline
Updated: 12:18 EDT, 18 April 2007

Top City broker UBS has put a price tag on ICI of 660p a share, which would value the Dulux paint group at £7.88bn should one of its rivals choose to bid.

That compares with the price of 536p, down ¾p, at which ICI was changing hands today - only 12¾p shy of the group's record high. UBS's comments came as it repeated its neutral rating on the shares but took the opportunity to jack up its price target from 470p to 565p, to ref lect the take-out potential contained in their value.

The broker points out that the coatings industry is still very fragmented, with the Dutch leader Akzo Nobel accounting for a global market share of less than 10%.

UBS expects some consolidation in the industry, and with ICI and Akzo with net cash on the balance sheet by year-end 'they can both be acquirers or targets'.

Recent speculation has suggested ICI as a potential target for a number of chemical companies, but UBS believes the hot money is riding on Akzo as the most likely bidder willing to pay up to 660p a share.

It warns, though, that the share price could fall sharply from current levels if a bid does not materialise, or ICI starts looking around for bid targets. Share prices generally continued

to beat a retreat in the face of yesterday's inflation numbers.

It now seems certain that the Bank of England monetary policy committee will raise interest rates next month. The big question, however, is by how much? Most economists have pencilled in a rise of a quarter point, but there are those that warn it could be by as much as half a point. Such a move would have severe ramifications for stock market investors. The FTSE 100 index fell 48.4 to 6449.4.

Things backfired badly for Imperial Energy just after the oil explorer proudly announced that it had completed laying 208 kilometres of pipeline in the Tomsk region of western Siberia. This will enable it to deliver on its production targets.

But the City was more concerned about comments from Russia's environmental regulator Oleg Mitvol. He has told Imperial's auditors that the recent audit, which doubled its reserve base, was faulty enough to warrant investigation by the prosecutor's office.

Imperial has been hailed in recent weeks as another potential Cairn Energy, boasting recoverable reserves of almost 900 million barrels in Russia. His comments left the shares nursing a loss of 184p, or 13%, at 1261p, making it one of the biggest fallers among the FTSE 350 index. This year alone the shares have come up from around the 610p level.

Among blue-chips, talk of a takeover continued to lift International Power, up ¾p at 420p. This week IP has been linked with Suez of France, but brokers say the rise may be linked to possible power and desalination contract wins with Saudi Arabia and Qatar. Bid speculation was also good for Drax, Europe's biggest coal-fired power generator, up 14½p at 820p. ING is sceptical and began coverage with a sell rating and 650p target.

Chemring Group lost 14p to 2026p after UBS raised its sights from 1300p to 1400p to reflect the value expected to accrue from the acquisition of Simmel Difesa. UBS said it expected the defence contractor's acquisition of the Italian munitions specialist to boost 2008 earnings by around 5.6%.