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Market report: Thursday close

By Mickey Clark for MailOnline
Updated: 13:07 EDT, 22 May 2008

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City speculators may have a sweet tooth, but that was not the reason they were chasing Cadbury today. Shares in the Dairy Milk and Halls Mentho-Lyptus group helped lead blue-chips higher with a rise of 16½p to 698p amid claims a bid may be on the way.

Mickey Clark, Evening Standard

Despite recently demerging its softdrinks operations, Cadbury is still valued at more than £9 billion, a big mouthful for buyers with even the deepest of pockets. One potential bidder is believed to be The Sage of Omaha, Warren Buffett, who already owns a 3% stake. Another is US food giant Kraft.

Speculators say Cadbury is looking increasingly vulnerable to takeover following the demerger, and the recent £11.5bn takeover of chewing-gum maker Wrigley by Mars has only helped to fuel the rumours.

Shares generally traded above their worst levels of the day despite another overnight heavy sell-off in New York, where the oil price climbed above $135 a barrel. The FTSE 100 index fell 16.5 to 6181.6 as did the Dow, falling 426.97 to 12,601.19.

The outlook for investors may appear far from rosy at present but, despite the uncertain future, they continue to snap up mining shares, which have enjoyed a phenomenal run over the past couple of years.

Perhaps comments from the likes of Sanford Bernstein encourage them. Today it raised its price targets on Rio Tinto, up 28p at 6669p, BHP Billiton, 44p dearer at 2110p, Xstrata, 87p ahead at 4224p, and Anglo American, 28p higher at 3543p. It believes they still offer good value for money - particularly those with significant bulk commodity exposure.

Sanford says soaring bulk prices are not a product of speculation, and coal and iron ore are not included in commodity indices. Top of its shopping list is bid target Rio Tinto, which it rates as outperform with a price target jacked up from 6800p to 8000p. It has lifted its target for potential suitor BHP from 2000p to 2500p, rating the shares outperform. BHP has made little headway with its proposed 6000p-a-share offer.

Market-perform ratings have been awarded to Xstrata and Anglo American with Sanford's sights raised from 3500p to 4300p for Xstrata and from 3500p to 3900p for Anglo. Xstrata boss Mick Davis clearly has confidence in the future - he has just spent £6.9m buying 167,480 shares at 4151p.

J Sainsbury rose 4¾p to 344¾p as more than 41m shares changed hands. That included a line of 33m shares, worth £113.6m, which changed hands at 344¼p each.

Banks were marked lower for choice. Lehman Brothers has downgraded Barclays, 6p off at 392p, from overweight to equalweight, claiming shares of Britain's third-biggest bank may continue to discount the likelihood of more writedowns and capital-raising.

Lehman says that despite denials, Barclays still needs to raise an extra £10bn of fresh capital. The broker has set a price target of 433p.

Laura Ashley, unmoved on 25p, has raised its stake in men's fashion chain Moss Bros, ¾p cheaper at 44¾p, with the purchase of 2.2m shares. It raises Ashley's total holding to 9.25m shares, or 7.46%. Icelandic raider Baugur has already said it may offer 42p a share for Moss Bros.

Lansdowne Oil & Gas, up 3p at 27½p, has placed 2.97m shares with LC Capital Master Fund at 30p each, raising £892,000. The placing will raise the holding of LC Capital Master Fund and its associates to 8.4m shares. The fund now has an interest in 22.87m shares, or 66.4% of Lansdowne's enlarged capital, but an offer for the rest of the shares is unlikely.

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TOMORROW'S AGENDA

• Pubs and brewing group Marston's delivers first-half results. Broker Dresdner Kleinwort believes they will prove disappointing after the group advised operating profits for the fullyear are likely to be flat. But Evolution Securities analysts picked the Pitcher & Piano owner as top defensive stock in the sector and forecasts pre-tax profits of around £35.9m. Although Marston's, like its rivals, is suffering from the impact of the smoking ban and consumers curbing spending, its food operation should still be doing well.

• The second official estimate of the first quarter's economic growth, or GDP, will for the first time show how much the Office for National Statistics calculates households have cut their spending. Given the bizarrely strong ONS data on retail sales in the first quarter, don't expect too dramatic a slide. Figures on housebuilding and company spending on plant and machinery will be more telling.

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