Market report: Wednesday close

 

It look as if the long-awaited bid for hotels, pubs and coffee shops operator Whitbread is now just around the corner. At least, that was what the share price was indicating today as it soared by more than a quid with over sevenm changing hands.

The story doing the rounds late last night claimed the US real estate group Starwood Capital was poised to bid up to 2500p a share, valuing the Premier Travel Inn and Costa coffee bars group at almost £5bn.

Dealers say a large trade went through at the 1835p level during the after-hours auction last night, even though the shares had closed 18p lower at 1818p. This sparked speculation that someone may have begun building a stake as the prelude to a full bid.

There were no buyers to be seen at the 1807p level first thing, but around midmorning the price suddenly took off, leading the big board higher with and closing up 128p at 1946p.

Even so, the rest of the market could glean little comfort from this latest burst of takeover talk. Instead, shares generally continued their slide following a big sell-off overnight on Wall Street as the US subprime mortgage crisis deepened. The FTSE 100 index tumbled 15.8 to 6,615.1.

Unilever moved against the trend to build on this week's lead. Shares in the Anglo-Dutch food giant jumped 36p to 1683p on talk of a bid from Colgate Palmolive in the US. Dealers say Unilever shares are being re-rated following Danone's £8.4bn bid for Dutch rival Royal Numico.

Heavy turnover was recorded in takeover favourite Compass, up 4½p at 352p, as almost 60m shares were traded. A line of 25m went through on the ticker at 345p.

Sell Royal Dutch Shell, don't hold your breath with BP and instead buy BG Group. That was the message from Goldman Sachs with the price of Brent crude continuing to trade above $76 a barrel.

Goldman warns that Shell, down 29p at 2107p, faces three years of heavy investment totalling $30bn (£15bn) without the prospect of any useful return for sometime to come.

Goldman has cut the shares from neutral to sell and added them to its 'conviction sell' list with a 1900p target. BP, off 6½p at 605p, has also been downgraded from buy to neutral by Goldman, although HSBC has raised its target on the oil giant from 620p to 695p.

But Goldman has raised BG, up 21p at 842p, from sell to buy and added the shares to its 'conviction buy' list. It describes BG as the stand-out, premium delivery company within the European integrated oil sector.

Goldman has cut National Express, down 28p at 1080p, from neutral to sell and raised Arriva, up 13p at 783p, from sell to buy. National Express is currently the most expensive stock in the bus and rail subsector, while Arriva has underperformed this year. The broker has raised its target for Arriva from 607p to 857p and attributes the upgrade to the winning of the Cross-Country rail franchise.

The franchise will 'significantly' raise the group's profitability and provide management with considerable earnings visibility within the rail segment. Goldman has slashed its target for National Express from 1100p to 1000p. It was surprised at the company's failure to secure rail franchise awards recently.

ARM Holdings dipped 2p to 151¾p after Credit Suisse downgraded the microchip designer and developer from outperform to neutral while repeating its 160p target. The broker is urging clients to take profits following a strong performance by the shares, as ARM is now fully valued with little scope for improvement in the price.

Credit Suisse has also raised its rating on Ultra Electronics, up 11p at 1109p, from underperform to neutral and says a bidmay be on the way. Ultra is described as one of the highest-quality companies the broker covers.

TAKING STOCK: Market news at a glance

BANKING & FINANCE
Daniel Stewart has begun coverage of THB with a buy rating and 130p target following better-than-expected numbers from the insurance broker and risk management specialist yesterday. Pre-tax profits jumped 31% despite challenging conditions. The broker reckons interest rates, acquisitions and new business will drive the price higher.

BUILDING & PROPERTY
Evidence of a housing slowdown that accompanied the Bovis Homes trading update on Monday has prompted ABN Amro to lower its sights on the builder from 1220p to 1015p. Cumulative reservations are now only flat year-on-year, having been up 9% at the time of the AGM in May. The broker continues to rate the shares a buy.

CONSUMER
The knock-on effect of French food group Danone's £8.4bn offer for Dutch rival Numico is being keenly felt by rival Unilever. It led other bluechips higher, with shares of the Lipton tea and Hellmann's mayonnaise group trading at record levels. Brokers say that if the Numico deal goes through it will lead to a re-rating of Unilever.

ENGINEERING
Aga Foodservice's sale of its commercial catering business, which manufactures ovens for fast-food joints and pubs, may not fetch as much as hoped, says Panmure Gordon. The broker reckons the business will do well to raise £225m. much of which will go into Aga's pension fund. It leaves the stock as a hold.

HEALTH
Chairman Alistair Taylor, chief executive Brian Howlett and finance director Tim Hall have bought shares in Lombard Medical Technologies via placing at 25p. Taylor has bought 150,000 shares, raising his stake to 1.37m. or 1.73%, and Howlett 40,000 shares, taking his stake up to 46,250. Hall bought 40,000 and now owns 45,000.

INDUSTRIALS
Lehman Brothers has raised SABMiller from 1230p to 1500p and repeated its overweight rating. It says future dealmaking among brewers should be good for buyers and sellers. SABMiller has a strong global footprint as the number two brewer, and will prefer regional acquisitions to fill the gaps in its portfolio.

LEISURE
London pubs group Young & Co has made a good start to the year and trading is in line with expectations despite poor weather in June. The group, which operates 220 pubs in London and the South-East and last year merged its brewing operations with Bedford-based Charles Wells, said retail sales increased 15.4% in the first 13 weeks.

MEDIA
Equity Partnership Investment has bought Keatings Group, which makes printing cylinders, and Evolving Media, a marketing and communications services provider, for a total of £ 4.7m. Fully-quoted Equity Partnership said the combined company will be led by its incoming managing director, Paul Mustoe.

NATURAL RESOURCES
Russian authorities have called for the withdrawal of Highland Gold's licence to develop the Mayskoye gold deposit in Chukotka. Environmental watchdog Rosprirodnadzor alleges that the company failed to submit a plan to develop the deposit in north-east Russia and produce 1000 kilograms of gold this year.

RETAILING
Charles Stanley has raised Marks & Spencer from reduce to hold in the wake of yesterday's first-quarter trading update. It describes the retailer's performance as credible in the face of poor weather conditions, the disruption caused by store refurbishments and the drop-off in consumer spending. But the outlook remains uncertain.

SUPPORT SERVICES
Johnson Service Group has hinted it may have to sell some of its non-core businesses to reduce debt. Chief executive Charles Skinner is looking to restructure the workwear rental company, and that will mean selling assets or non-core businesses. UBS says the balance sheet is highly geared and has a pension deficit of £34m.

TECHNOLOGY
UK software company Anite plans more acquisitions to boost its wireless and travel divisions. Anite, which provides software and IT services for public-sector, travel and telecoms customers, makes 70% of profits from its wireless division and has almost completed integrating its wireless technology - Nemo and Invenova.

TELECOMS
Deutsche Telekom may bid for pay-TV operator Premiere. That was the story doing the rounds in Frankfurt yesterday as Premiere was marked sharply higher. Brokers claim such a move would make strategic sense because it would allow Deutsche Telekom, which has been looking to expand, to offer pay-TV on mobile phones.

TRANSPORT
Lonrho has acquired a 45% stake in South African ships operator SA Independent Liner Services (SAILS) for £3m. The African conglomerate also has an option to buy a further 6% stake in SAILS, which operates on routes from South Africa to West Africa and Europe, from existing shareholders over the next five years.

UTILITIES
Goldman Sachs has raised coal-fired generator Drax from neutral to buy and lifted its target from 796p to 827p. The broker says the shares are trading at a 'material discount' to the price of oil, with which it is traditionally correlated. The crude price is driving the gas price, which is the marginal fuel for UK power generation.