FTSE in-depth: Yule Catto soars on BASF bid rumour

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

Speciality chemical companies have in recent years been swatted like flies.

Hungry international predators have swooped on those companies that make anything from additives for everyday products, such as paints, to materials used in the semiconductor industry.

The reason being is that the diversity of their businesses makes the sector recession-proof, as the need for their chemicals will always be there.

Yesterday, one of the remaining independents was the flavour of the day.

Harlow-based Yule Catto soared 22.3p, or 9%, to a year's peak of 268.8p on hot rumours of a £547m, or 375p, a share cash offer from industry giant BASF of Germany. Dealers heard whispers that the Germans have already been given the green light to proceed by Kuala Lumpur Kepong, which owns 19% of Yule Catto's equity and has been a major shareholder since 1976.

Yule Catto's products are used by customers in the manufacture of a range of products, such as coatings, building products, gloves, carpets, paper, PVC, adhesives, plastics and pharmaceuticals.

It reported excellent first-half results in August, showing strong growth in earnings driven by profits in its Polymers Division, which makes up more than 80% of group revenues and profits.

Early caution ahead of tomorrow's longawaited Comprehensive Spending Review gave way to firmer trading conditions in London as Wall Street recouped an initial 30-point deficit to trade 46 points higher following Citigroup's better-than-expected third-quarter profits.

The Footsie closed 39.1 points up at 5,742.5.

The collapse of Rio Tinto (63p down at 4080p) and BHP Billiton's (14p easier at 2185p) proposed iron ore production joint venture in Western Australia exerted early downward pressure on miners. Xstrata shed 6p to 1305.5p, with cautious comments on the copper price from HSBC also weighing on sentiment.

Buyers continued to plug in to BT Group, 2.2p better at 149.6p, following Friday's reassuring statement that it is guaranteed a role as one of the Coalition government's chief network IT suppliers. Evolution Securities says buy and has a target price of 180p.

Barclays advanced 4.25p to 289.25p following a Deutsche Bank recommendation. The broker says that Standard Chartered's capital increase has stoked fears that Barclays will be pressured into a significant dilutive fundraising. But it says Barclays would still be cheap even if it raised £19bn. The key downside risks for the stock are a fall in lucrative investment banking activity and an unexpected spike in credit costs.

The closing of some hefty short positions helped Falkland drillers regain some composure after Friday's carnage. But shrewd investors continued to stay well clear of the seat-of-your-pants sector.

Desire Petroleum, which plummeted 39.25p after announcing that its key Rachel exploration well was dry, rallied 17.5p, or 25%, to 88p. Oriel Securities downgraded to hold and noted that the exploration programme remains high risk. Really! The broker apparently prefers Rockhopper Exploration, which at 336p retrieved 43.75p of Friday's

Shares of commercial electrical vehicle maker Tanfield rose 2.75p to 19.25p after it rejected a proposal from Liberty Electric Cars which would have seen it acquire a majority stake. Dealers now believe Liberty's interes t could f lush out another interested party.

AIM-listed Endace, a world-leader in highspeed network security, jumped 11.5p to 244p. Home Secretary Theresa May has put the dangers of attacks on computer networks among the biggest threats to the UK and Endace's products are used for protection-against cyber attack. Contract news helped Cohort climb 4p to 64.50p.

The provider of niche products and services to the defence and security sectors announced that its subsidiary SEA has secured a €5m contract to design and build measurement sensors for use on the European Space Agency's EarthCARE spacecraft in 2013.

Agriterra edged up 0.75p to 3.80p after reporting a 100% increase in sales at its two maize processing facilities.

The government of Mozambique has also given major project investment approval to its beef operations, allowing the company to accelerate expansion plans.

Upbeat results on its proprietary influenza vaccine helped Lipoxen add 0.12p at 6.62p.

Its revelation that full-year results would better current market forecasts helped software group i-Design soar 3.5p, or 30%, to 15p. Shop broker Arbuthnot's target price is 20p.

›› Rumours suggest new boss Marc Bolland is not exactly Mr Popular at Marks & Spencer's headquarters. However, the market awaits any strategic changes that could accompany interim results on November 9th. Singer Capital Markets says sell the shares (1.2p dearer at 413.8p) as pressure on discretionary spending and the fact the IT/supply chain overhaul is still early stage, means profit growth next year will be hard to achieve.