FTSE in-depth: GKN fails to fuel a Footsie flurry
Nature abhors a vacuum, as do the markets. And so, lacking any sort of direction on a day when stocks struggled to find their equilibrium, investors turn to a long-trusted currency: gossip-mongering and tittle-tattle.
Feeling blue: Overall the Footsie endured a rather curious-day.
Recent days have seen a flurry of acquisition rumours, few of which have as yet borne fruit. The latest company in the frame is GKN, whose suddenly elevated position as a takeover target is curious.
The car-parts maker is reasonably well run and is manfully struggling to reduce its pension liability, which stands at £765m. But is it overpriced? Some investors clearly think so - even talk of a bid failed to sustain a share price that inched up 3.4p in the morning before ending down 0.8p at 167.6p.
Many investors clearly believe that a stock which was a steal when bumping along at around 100p in February is now something to avoid. Much of the scuttlebutt seems to come from the fact that GKN is a direct rival to Tomkins, the engineering group that recently voted in favour of a £2.9bn takeover by a Canadian consortium. In a neatly ironic twist, GKN is also the company in line to replace Tomkins in the FTSE 100 if and when the latter's de-listing takes place.
Yet not everyone is sure. Noted one analyst: 'GKN is benefiting from money flooding out of Tomkins and seeking a similar place to invest, that's for sure. But some of that money believes that GKN could be sold. It's not an outlandish idea.'
The analyst highlighted several rivals as potential buyers, notably Johnson Controls, Magna International, and ArvinMeritor. 'If my heart could bet on the likelihood of this deal getting done I'd put it at 40%. But with the sell-off of British industry seeming to speed up, my head might say 60%.'
Overall the Footsie endured a rather curious-day, rising by nearly 1pc in morning trading-before stalling and falling. It ended down 26.35 points at 5576.19 despite positive news from America, where housing starts hit a four-month high.
Takeover talk seemed to pierce every level of the index. British Gas owner Centrica is believed to be lining up a counter bid of around 450p-480p for International Power (up 1.8p at 388.6p), which has recently sealed a tie-up with France's GDF Suez.
Meanwhile Wellstream, a Newcastle-based maker of flexible pipes for the offshore oil industry, is seen as being a target for a gaggle of larger international rivals including Saipem, National Oilwell Varco and Aker Solutions. The wagons are circling: Keith Morris at Evolution Securities raised his target price on Wellstream to 800p from 600p on a day when the company led the FTSE 250 higher, jumping 176p to 785p.
Leading banks enjoyed a largely positive morning before falling back in line with the market during afternoon trading. Lloyds Banking Group ended down 0.51p at 76.9p despite seeing Goldman Sachs raise its target price to 106p from 97p. Royal Bank of Scotland saw its stock close 0.44p lower at 48.6p. Both banks were praised for their tier-one capital reserves in a note by the US investment bank.
Vedanta Resources, which is gunning to buy Cairn Energy's India assets, topped the list of FTSE 100 risers, ending 49p higher at 2202p. Cairn itself was the second biggest gainer: news that the energy explorer had struck gas off the coast of Greenland helped push its shares 9.7p higher to 436.5p.
Smirnoff owner Diageo also bucked the trend, ending 3p higher at 1095p. Evolution Securities reiterated its buy rating on the stock and maintained its target price at 1300p, approving of Diageo's 'much-strengthened Chinese business' and tipping its October 14 trading update figures to be 'strong' and with earnings likely to 'skew to the upside'.
Mining plays suffered more than most. Rio Tinto closed down 34p at 3570p, with BHP Billiton ending off 21p at 1959p. Xstrata cheapened 23.5p to 1167.5p. Eurasian Natural Resources led the FTSE 100 lower, closing 25p lower at 889.5p. The oil majors had a mixed day: BP closed 3.45p up at 414.8p while Shell lost 8p to close at 1895p.
Construction group Balfour Beatty saw its stock inch up 1.7p to 268.6p after wining a tender to provide £325m worth of building support services to two major US projects in Texas and Florida set for completion by May 2014.
Seymour Pierce maintained its hold rating on Morrison (down 1.8p to 304.5p) after it rolled out healthy half-year profits. The broker maintained its 320p target price on Britain's fourth-largest supermarket, calling incoming chief executive Dalton Philips a 'safe pair of hands'. Sainsbury's closed 2.3p down at 391.8p, with Tesco ending 4.5p cheaper at 433p.
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