Market report: Monday close

 

Shares in United Utilities were the focus today as fresh takeover talk helped it buck the downward trend seen elsewhere in the water sector.

Rumours of a 900p-a-share bid worth £8bn swept through the City, however, left UU shares up 770p. Chief executive Philip Green put the electricity distribution business up for sale earlier this month as he looks to break up the company.

The move immediately saw speculators talk up the stock as takeover fodder, although analysts today said a potential bid could be some way off. The gains at UU were not matched by rivals as investors reacted to concerns that water companies are overvalued. Collins Stewart downgraded the whole sector, arguing that most water stocks are 25% to 30% too expensive following a surge on the back of takeover talk.

Kelda fell 36½p to 975p while Pennon was down 9p to 635½p, Severn Trent dipped 10p to 1487p and Northumbrian Water lost 7p to 318p.

The wider London market gave up early gains despite frenzied interest in takeover target ICI - up 85½p to 634½p - and a strong performance in Asia on the back of tame US inflation data at the end of last week. The FTSE 100 index sank 28.9 points to 6703.5 after a stellar performance last week that saw the index sweep past 6700 for the first time in seven years. The Dow Jones was also on the slide, off 17.4 at 13,622.1.

Many in the City are expecting a degree of consolidation in markets across Europe, although CMC Markets trader Matt Buckland said it was 'doubtful that this will mark the start of a bigger reversion'.

Traders are also mindful that minutes from the Bank of England's latest interest rate meeting, to be published on Wednesday, could dampen spirits if there is a suggestion that the cost of borrowing will rise more than expected in the coming months.

Economists forecast at least one more quarter-point increase in the base rate to 5.75% in July or August, and there are fears the Bank could put rates up to 6% or even higher by the end of the year as it looks to control rising inflation.

Supermarkets giant Sainsbury's fell out of favour with investors today as doubts emerged over the likelihood of a full-blown takeover bid. The Qatari royal family raised its holding in Britain's third biggest grocer to 25% on Friday when it bought another 7.1% stake for £732m, or 595p a share. It fuelled hopes that a bid worth at least 600p a share would follow, sending Sainsbury's up more than 4% to 590p in the final session of last week.

However, the shares fell 6½p to 583&frac;p today amid doubts over Qatari-backed Delta Two's intentions and its chances of swaying the Sainsbury family.

Invensys rose 7¾p to 382¾p after traders cited talk of interest from rival Siemens. Although Siemens declined to comment, analysts said the current value of Invensys at about £3bn made such a deal affordable, while Credit Suisse upped its target to 390p from 330p.

Housebuilder Barratt had a disappointing-start to life in the FTSE 100 index with its shares down 29p to 1046p. Barratt was promoted to the top flight in the latest Footsie reshuffle at the expense of Bradford & Bingley, which fell 2¼p to 426¾p in the FTSE 250 index.

But there was better news for Domestic & General after its promotion to the second tier. The shares surged 148p to 1300p as it returned to the takeover spotlight. Emergency plumber Homeserve said last month that it was considering a £500 million bid for D&G.

Sports Direct was steady in its FTSE 250 debut following a troubled listing in London earlier this year. Majority owner Mike Ashley has seen shares in the retailer dive from a high of 285p to as low as 190p since he took it to the market, although they have since recovered to stand above 200p. They were up 2p to 206p today.

SHARES ADVICE & TOOLS

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Share price graph in newspaper

TAKING STOCK

BANKING AND FINANCE

Mortgage lender Bradford & Bingley has enjoyed a strong start to the year thanks to a decent pipeline of new business, according to Barclays Wealth, which rates it as a 'conviction buy'. Bradford & Bingley recently said that it is comfortable with consensus forecasts for the year, and Barclays Wealth sees no reason why this will change.

BUILDING AND PROPERTY

Specialist business parks owner MEPC is planning to raise £500m through an institutional fund-raising in order to drive expansion. MEPC will use the funds to double the value of its £1.1bn, nine million-square-foot portfolio in a five-year development programme. It owns eight business parks around the UK, housing more than 850 businesses.

CONSUMER

Panmure Gordon expects 'another good performance' at supermarkets group Tesco in the first quarter with like-for-like sales excluding petrol up 5.5%. Analyst Philip Dorgan said expansion in the US could also boost the share price. 'As stores are added, we expect investor appetite to be whetted,' he said.

ENGINEERING

The US Air Force has decided to push its suppliers to develop a new type of fuel to power its bomber and fighter planes. The idea is for the development of a mixture of conventional jet fuel and non-petroleum-based fuels that would limit America's reliance on imported oil, the New York Times reported.

HEALTH

Cannabis-based medicines firm GW Pharmaceuticals has given investors a boost with a range of products for patients suffering from severe medical conditions such as multiple sclerosis, cancer and spinal-cord injury. The City is hoping for further signs of progress when it presents interim figures tomorrow.

INDUSTRIALS

US industrial production figures for May were disappointing, says ING Bank. Manufacturing output rose 0.1% as a 0.5% decline in car output offset strength elsewhere. Utilities output fell 1.3% as warm weather reduced demand, while mining output rose 0.5%. 'We suggest this will be just a temporary blip,' says analyst James Knightley.

LEISURE

Strong trading at Premier Travel Inn and Costa Coffee continues to drive business at Whitbread following the sale of David Lloyd Leisure for £925m. However, shareholders are anxious to see further improvement at its Brewers Fayre and Beefeater pubrestaurant chains, according to City analysts.

MEDIA

Newspaper publisher Johnston Press will deliver a snapshot of the industry this week when it delivers its latest trading update. The City will be looking for signs that advertising revenues have started to recover amid competition from areas such as the internet. Johnston owns a string of regional titles around the UK.

NATURAL RESOURCES

Metrogas, Argentina's biggest natural gas distributor, was ordered by the South American country's government to cut supplies to industrial users to ensure that homes were supplied during a cold spell. Metrogas was forced to restrict flows over the weekend for the second time in a month.

RETAILING

WH Smith shares are a strong buy, according to Pali International. Trading has improved but the market has yet to catch up with the good news, argues the broker. The books, magazines and CDs retailer ran a very successful books promotion recently, and it has managed to retain Kate Swann as chief executive.

TELECOMS

Collins Stewart is urging clients to buy Telefonica shares and sell France Telecomas it predicts a change in fortunes at the European phone giants. Analyst Mark James said Telefonica has 'stagnated, failing to play a part in the recent sector rally' while France Telecom's outperformance 'seems to have gone too far'.

TECHNOLOGY

Video games designer SCi Entertainment is launching its latest Tomb Raider game in four episodes. Tomb Raider Anniversary will be downloadable on Microsoft's XBox 360 console. SCi said the move was a major plank in its drive to deliver more games digitally. A traditional retail version will be launched later.

TRANSPORT

Le Bourget, the private airport outside Paris, will be the battleground for air supremacy in the long-range, mid-sized jetliners market over the next couple of days. The biennial Paris Airshow will see Airbus announce new orders for its A350XWB in a bid to catch Boeing's 787 Dreamliner, which is in production from next year.

UTILITIES

Credit Suisse has increased the target price for United Utilities from 683p to 708p after the sale of United's electricity distribution business and a return of equity from the proceeds of the sale. However, it adds that United is 'our least-preferred stock in the sector and we continue to rate it underperform'.