Market report: Thursday close

By Mickey Clark for MailOnline
Updated: 12:10 EDT, 23 August 2007

The collapse of the subprime mortgage market in the US has left Northern Rock looking like a sitting duck.

A bid from HSBC may be just around the corner. That was the story doing the rounds in the Square Mile today as shares of Northern Rock raced up the leaderboard with a jump of 29p to 757p.

They were changing hands at 638p just last week despite reassurances from the mortgage lender that its exposure to the subprime crisis was minimal. Some traders attributed today's rise to investors covering their positions having sold the shares short at the height of the subprime crisis.

Now the speculators have convinced themselves that a bid from HSBC is imminent. Only yesterday, Cazenove admitted that HSBC, down 9½p at 897½p, could afford the £3.5bn that would probably be needed to secure the backing of the Northern Rock board, but was doubtful that any such move would be made short term.

Recent consolidation in the banking sector suggests further deals are on the cards. Overnight Banc of America agreed to pump $2bn (£1.01bn) into troubled Countrywide Financial, America's largest mortgage provider, which has seen 30% of its value wiped out in recent days.

Shares generally opened on another positive note, with investors pinning their hopes on another strong opening for the Dow this afternoon on Wall Street. The FTSE 100 index closed just 0.9 points higher at 6287.2. The wider FTSE 250 climbed 35 to 10,945.7. Hopes the current rally can be extended further brought in the buyers for other financials such as hedge-fund operator Man Group, 8½p better at 490p, and Schroders, up 54p to 1334p.

But mining shares set the early pace with Vedanta Resources up 20p at 1679p, Antofagasta steady at 694½p, and Kazakhmys putting on 4p to 1254p.

The UK's largest housebuilder, Persimmon, suffered a reaction in the wake of Tuesday's half-year profits. ABN Amro has repeated its buy rating but cut its target from 1720p to 1530p after scrutinising the group's land bank. It says 53% of plots added to the land bank were from strategic sources, which amounts to 17.6% of the average selling price.

Dresdner Kleinwort has raised a glass to Scottish & Newcastle, up 1½p at 599½p, because of its defensive qualities in these volatile markets. The wet summer has meant a challenging time for the group, but the broker reckons the City has now started to look beyond this. It repeats its buy rating and 670p target.

Waste disposal specialist Biffa is showing signs of revival with the shares having recently struck a low of 218¼p. Today they rallied 12p to 237¼p, making it one of the better performing second-liners. Biffa was demerged from Severn Trent last year but has, so far, failed to live up to expectations.

Circle Oil, 2p better at 20p, has started drilling on the Zita prospect in southern Tunisia and expects to continue for two months. Venture Production, down 1p at 740½, is making a recommended cash-and-shares offer for Wham Energy, 15½p dearer at 42½p, worth 44.7p a per share and valuing Wham at £14.2m. The North Sea oil and gas producer said Wham shareholders will receive 19.7p in cash and 0.0338 Venture shares for each Wham share held.

Taking stock – secotrs at a glance

BANKING AND FINANCE
Cazenove has repeated its overweight rating on Northern Rock after the 40% slide in its shares this year. The broker is not surprised there is talk the lender will be bid for by HSBC, but warns that price could be a stumbling block.

BUILDING AND PROPERTY
Panmure Gordon has begun coverage of Persimmon with a buy rating and 1423p target following Tuesday's results. Panmure expects Persimmon to outperform the rest of the housebuilders due to strong operating margins.

CONSUMER
French food giant Danone has pulled fruit yogurts off the shelves in Romania on the suspicion that they have been contaminated with dioxin. Food health authorities have been carrying out checks on the product.

ECONOMICS
The pound rose today as traders felt that, while the US would soon cut interest rates, the Bank of England was more likely to raise them, or at least keep them on hold. 'The Bank of England is definitely not going to cut, so people are buying sterling,' said a trader.

ENGINEERING
Severfield-Rowen is buying steel fabricator Action Merchants for £90m in cash and shares. The group said the acquisition will extend its position in the UK and give it a stronger presence in the Irish steel-fabrication market.

HEALTH
Roche's arthritis drug MabThera has been approved by the National Institute for Health and Clinical Excellence. The drug, known generically as rituximab, will be prescribed in combination with arthritis treatment methotrexate.

INDUSTRIALS
Bridget Blow will replace founder John Harris as chairman of Alba when he retires on 4 October. The consumer electrical goods distributor has also sold its leisure division after shareholders approved the move at an EGM.

LEISURE
Numis has cut its target for Whitbread from 2400p to 2305p ahead of the Costa Coffee and Premier Travel Inn group's pre-close trading update. The broker continues to rate the shares a buy and believes Whitbread will return £950m to shareholders.

MEDIA
Word is Arnoldo Mondadori Editore wants to buy Emap's consumer magazines division, which already publishes Grazia under licence for the Italian publisher. The broadcaster and publisher put itself up for sale earlier this year.

NATURAL RESOURCES
Mixed drilling results prompted Evolution to cut its rating on Venture Production from buy to add. Venture reported a discovery on the Channon gas prospect, a sub-commercial appraisal well and an inconclusive test on the Pilot heavy oil field.

RETAILING
Sainsbury's was fuelled yesterday by talk of bidder Delta Two adding to its 25% stake. Evolution expects the bid to be blocked by financing problems or the Sainsbury family's 18% stake, but thinks Delta will return with a lower offer next year.

SUPPORT SERVICES
Finance director Ranjit Roy-Choudhuri has bought 666,666 shares in Intellego from managing director Andy Green at 1.5p each. It lifts his stake in the e-learning management solutions provider to 1.72m shares, or 1.72%. Green's stake drops to 10.7m, or 10.6%.

TECHNOLOGY
Non-executive chairman Jeremy Hamer has bought 120,000 shares in AIM-listed Access Intelligence at 3.9p each, raising his stake in the software and computer services group to about 2.7m shares, or 2.5%.

TELECOMS
Telekom Austria has bought interactive TV voting company Mass Response Service fromDutch company Twister Media for £13m as part of expansion plans. MRS is responsible for the Eurovision Song Contest voting.

TRANSPORT
JPMorgan is pinning its hopes on a recovery by low-cost carriers, claiming the predicted drop in demand has not materialised. Ryanair and easyJet are no more exposed to a consumer slowdown than BA, it says. Both are rated overweight.

UTILITIES
Cape, the supplier of services to the power-generation and oil and gas industries, has bought Total Corrosion Control, an Australian group specialising in painting, insulating and servicing mining and oil extraction equipment, for £34.3m.