Market report: Friday close

By Mickey Clark for MailOnline
Updated: 12:09 EDT, 18 May 2007

It was Royal & SunAlliance's turn to bask in the spotlight of intense takeover speculation today. The insurer rose 3.3p to 172.1p on talk Finnish insurer Sampo is stalking it.

Credit Suisse raised its price target to 146p from 129p although it has left its rating unchanged at underperform, and is generally underwhelmed by the group. The broker thinks RSA looks expensive compared with rival UK non-life companies, many of which also trade at around 1.6 times 2007 estimated net asset value but provide a higher return on capital.

Some 23m shares changed hands, but Friends Provident, 1&frac134;p higher at 206¾p and yesterday's big rumour target, eclipsed that with turnover of 26m shares.

Cadbury Schweppes whetted investors' appetites on rumours two private-equity consortia are cooking up rival £8bn-plus bids for its US drinks arm. The confectionery giant climbed 11½p to 685p on heavy demand for the shares.

Sources close to the company said that 12 separate private-equity firms had registered their interest in buying the division and confirmed the existence of two powerful consortia. One consists of Blackstone, Kohlberg Kravis Roberts and Lion Capital, the other of Bain, TPG - until recently known as Texas Pacific Group - and Thomas H Lee. A possible bid for the whole of Cadbury Schweppes has been discussed but the idea discarded.

Cadbury has already announced plans to demerge the drinks arm, which takes in Dr Pepper, 7 Up and Snapple, and word is an information memorandum will be sent out to potential bidders at the end of the month.

Merger speculation kept bluechip shares moving up, and the FTSE 100 moved close to new seven year highs, up 61.6 points at 6640.9. Leading New York shares opened sharply higher this afternoon, the Dow climbing 50.10 to 13,526.80.

BP, 11½p ahead at 582p, and Shell, up 47p at 1906p, were boosted by vague talk of a mega-merger. Although any such deal is thought to be a long way off, the favourable reaction to market chatter indicates a positive reception should it eventually take place.

HSBC warned investors to stay away from retailers as it predicted household purses would feel increasingly pinched in the second half of the year. It has downgraded Marks & Spencer, 3½p lower at 744½p, and Kingfisher, off 3½p at 257½p, to underweight from neutral. In the wake of Next's unimpressive trading, it has lowered its target to 2300p from 2406p but kept its call at neutral. Next was 29p higher at 2284p.

Other retailers suffered including Home Retail Group, down 4¾p at 487p, and supermarkets chain Wm Morrison, ½p lower at 326p. Panmure Gordon is advising clients to sell Morrisons ahead of next week's AGM. While it is expecting an improvement in headline like-for-likes, it says the group will still underperform the rest of the industry.

Aim-listed Cobra Biomanufacturing slid 4¼p to 39p, knocked by GlaxoSmithKline's unexpected decision to end a contract to carry out work on two HIV vaccine candidates. The decision came after an internal Glaxo review and has nothing to do with Cobra's capabilities or work carried out.

TAKING STOCK: Market news in brief

Banking & finance
Chairman John Trott has bought an extra 10,000 shares in Murray International Trust for £65,500, or 655p each. That lifts his holding to 25,000 shares, less than 1% of the investment trust. The price hit a record 662½p yesterday.

Building & property
Trading at Henry Bootwas in line with its expectations in the first four months of its financial year. The property and construction firm says key land transactions and property completions will take place towards the end of 2007.

Consumer
Blue Oar Securities reckons SABMiller is looking a shade expensive after yesterday's full-year results. It has begun coverage of the shares with a sell rating and 1035p target. The outlook for the Carling brewer is seen as dull.

Economy
The growth of British workers' pay packets slowed in the first quarter as those in the public sector got the smallest rises since 1998, the Industrial Relations Services said today. The Office for National Statistics this week also reported subdued pay inflation.

Engineering
Broker Numis says that increased annual production at Airbus, which plans to build 25% more of its 120-150-seater short-haul aircraft beloved of budget airlines, is good news for engine-maker Rolls-Royce and for engineer Meggitt.

Health
Pharmaceutical developer Phytopharm has been given the goahead for second early-stage trials of Myogane, an experimental drug for amyotrophic lateral sclerosis, the most common form of motor neurone disease.

Industrials
Australia-based bioplastics technology firm Plantic Technologies is to raise £20m by issuing almost 80m shares at 64p each, when it floats on Aim this month. It expects a market cap of around £50.9m once it is floated.

Leisure
Profits from pubs chain Luminar got the City's seal of approval. Panmure Gordon has repeated its buy rating and says trading is positive. It has raised its target from 900p to 925p. Altium has moved from 800p to 840p and says the company's turnaround is gaining traction.

Media
ABN Amro has repeated its buy rating on Emap after chief executive Tom Moloney's departure. It expects the share price to trade up to 900p in anticipation of more radical action. Collins Stewart has upgraded the magazine publisher from hold to buy.

Natural resources
Central African Gold's first-phase assay results from the Birimian strata in Mali have been encouraging, yielding 39 follow-up targets, of which the company has prioritised 16. It has also identified gold-in-soil anomalies in the Yanfolila district.

Retailing
JPMorgan has downgraded J Sainsbury from neutral to underweight, worried by the supermarket chain's decision to continue growing its property portfolio when realestate prices are at a high. The bank has repeated its target of 500p.

Support Services
Financial Media has bought an extra 75,000 Stockcube shares, raising its stake to 887,500, or 9.23%. Stockcube, which analyses share and bond price trends, last month reported doubled full-year pre-tax profits. It plans to return 25p a share cash to shareholders.

Technology
AUS court has overturned a ruling that Google infringed copyrights of adult entertainment company Perfect 10 by displaying pictures of its nude women. But it said Google may be breaking the law by directing surfers to sites copying the pictures.

Telecoms
Seymour Pierce says the biggest surprise in BT Group's results was the 27% rise in the payout to 15.1p. But Nomura says the divi and buyback were well-flagged and news of financial restructuring might have been preferable.

Transport
Budget airline Ryanair is launching flights from Milan Bergamo to Alghero (Sardinia), Bari (Italy), Billund (Denmark), Cagliari ( Sardinia), Gothenburg (Sweden), Porto (Portugal), Riga (Latvia), Santander (Spain) and Tampere (Finland).

Utilities
Ofwat is set to approve a new water and sewerage company to serve domestic customers, the first in 18 years. Scottish and Southern Energy will supply just under 1000 customers in a new housing development in Wiltshire, currently operated by Wessex Water.