FTSE in-depth: Invensys saved from demotion

By Geoff Foster for MailOnline
Updated: 04:19 EDT, 8 September 2010

It looks as if chairman Sir Nigel Rudd and the Invensys board have been saved the ignominy of seeing the engineering group booted unceremoniously out of the Footsie today.

Eye on the Footsie ball: Geoff Foster

The shares shot up to 273p before closing 18.6p higher at 269.2p on meaty turnover of 15m as rumours of a £3bn or 375p a share cash bid from General Electric, the US industrial conglomerate, intensified.

GE, one of America's oldest and most prestigious companies, which has been a fixture in the Dow Jones Industrial Average index since 1896, is sitting on a mountain cash. Indeed, management said only last week that it has a war chest of £19bn which it is prepared to spend on acquisitions over the next 18 months.

Invensys comes with some baggage. It has one of the biggest gross pension liabilities as a percentage of its market capitalisation in the Footsie and any bidder would have to get the nod from the trustees.

Invensys said it is in talks to provide systems for up to four new nuclear power stations in China. Analysts have generally turned positive, saying give credit where credit is due.

Management has grown the order book to £2bn-plus in a period bedevilled by the economic crisis. The general consensus now is that any bid would have to be priced around the £4 a share level to stand any chance of success.

Speculation about a possible bid from either Singapore Telecom or AT&T has given Cable & Wireless Worldwide (2.65p easier at 70.10p) a big lift of late but the telecoms operator is still expected to fall through the Footsie's trapdoor into the FTSE 250. Argosto-Homebase retailer Home Retail (4.6p lower at 222.4p) and property group Segro (8.3p off at 266.6p) should also be relegated.

Clive Cowdery's acquisitive insurance group Resolution eased 2p to 251.4p but is tipped to gain promotion and get tracker funds interested again as is pump manufacturer Weir Group, 36p better at 1319p.

After traders in New York returned from the Labor Day holiday and immediately drove Wall Street 75 points lower in early trading, the Footsie closed 31.37 points down at 5,407.82. A report in the Wall Street Journal suggesting that Europe's recent 'stress tests' of major banks understated some lenders' holdings of potentially risky government debt got the day off to a bad start. The market struggled to recover in thin trading.

Barclays shed 8.85p to 314p on the WSJ article, although news of Bob Diamond's promotion to be the next chief executive of the bank raised eyebrows in some quarters. Part-nationalised banks Royal Bank of Scotland cheapened 0.84p to 46.11p and Lloyds Banking Group 0.37p to 72.34p.

Mining stocks moved south after Australian Prime Minister Julia Gillard secured a second term of office. Her government is vowing to press ahead with a new controversial mining tax. Affecting sentiment in the sector too was news that authorities in China have asked several steel companies to suspend production for several days to ease energy use concerns in the country.

BHP Billiton, involved in a hostile bid situation with Canada's Potash Corporation, lost 27.5p to 1892.5p, while Rio Tinto declined 62.5p to 3447.5p. Anglo American cheapened 32p to 2460.5p and Antofagasta 16p to 1076p.

Micro Focus International jumped 17.6p to 334.6p as analysts gave the thumbs up to the appointment of Mike Phillips as chief financial officer from October 4. He comes with more than 10 years experience of listed international technology corporations. He helped bring Morse back from the brink of insolvency. Panmure Gordon lifted its target price to 465p.

Buying ahead of the interim management statement on September 29 helped Domino's Pizza climb 19.1p to a year's high of 465.6p.

Sellers dragged outsourcing group Xchanging 9.1p lower to 126.7p. The group recently took the highly unusual step of summoning investors and analysts to a conference call to reassure them that its accounts were shipshape. Investors remain wary.

UK speciality pharma company ProStrakan collapsed 25.5p or 32pc to 53p. Investors ran for the exit on hearing that chief executive Dr Wilson Totten had fallen on his sword. His resignation follows problems related to the supply of anti-nausea patch Sancuso, as well as US regulatory delays with its cancer pain therapy Abstral. Broker NomuraCode downgraded to neutral on the news from buy.

Pleasing interims helped urology company Plethora Solutions edge 0.5p higher to 11.5p. FinnCap has a target price of 57p, saying the company already has five products in the market with a further eight estimated to join them before the end of the year: a firm foundation for a profitable urology business.

• Johnson Tiles and Triton shower group Norcros jumped 1.37p to 10.5p after saying it expects profits for the year to significantly exceed expectations. Shareholders will be delighted to hear too that it expects to restore a progressive dividend policy when it announces interims in November. Trading is improving and the balance sheet is strong. Topps Tiles could yet be interested.