FTSE in-depth: BG tipped for a blockbuster bid

By Geoff Foster for MailOnline
Updated: 07:39 EDT, 29 January 2011

According to the powers that be, and red hot rumours that have been doing the rounds for some weeks now, a blockbusting Footsie mega-bid will hit City screens very soon.

All fingers of late have been pointed at oil and gas producer BG Group. Its shares were changing hands below £13 just over a week ago and were chased up to 1471p yesterday before dealers had a chance to digest their cornflakes.

Talk of a mega-bid from a national oil company again got punters excited.

Profit-takers took over later in the day amid growing concerns about escalating tensions in Egypt, even though the oil price rose 2% to $89 a barrel. The close was 58p off at 1334p.

Broker JP Morgan Cazenove fanned the takeover flames when it forecast that state oil companies such as China's CNOOC - a partner of BG's in Brazil - will go on a shopping spree later this year.

Clients of Citigroup climbed aboard first thing too after it initiated coverage with a £16 price target. It followed this week's news that Brazilian state oil company, Petrobas, had struck oil at a field in which BG holds a 30% stake.

Citigroup says BG will be a key beneficiary, along with Spain's Repsol, of an expected acceleration of Brazil development now that Petrobas has recapitalised, proving improved visibility post 2015.

Royal Dutch Shell, often mentioned in the same breath as BG Group, lost 10.5p to 2204p despite Citigroup saying it offers the best value of the large caps, with strong cash flow growth to 2013 helping protect returns. It reports annual results on Thursday, two days after BP, 0.4p dearer at 486.8p.

News of tumbling UK consumer confidence and a disappointing 3.2% rise in fourth-quarter US gross domestic product which took Wall Street 40 points lower in early trading, left the Footsie 70.32 points lower at 5,894.76 and the FTSE 250 70.1 points off at 11,547.3. Ahead of maiden full-year results on Tuesday, online retailer Ocado rose 4.1p to 220.1p. Altium Securities is a seller and forecasts an annual pre-tax loss of £10m. The broker does not expect to see sales growth of 25% in the current year. It believes the group's costs are too high and that its competitors are too tough for the current share price to be justifiable.

Jam tomorrow loss-making technology company Pursuit Dynamics was on the slippery slope again following recent strong gains on a bullish comments from shop broker Cenkos. Its shares fell 10p to 359.75p after Evolution Securities was not exactly impressed with a presentation given to the broker on Wednesday by chief executive Roel Pieper and business development director Jonathan Bailey. Evolution says there is no doubt Pursuit has developed some interesting technology for process industries but it does not believe that management will be able to commercialise the process as promptly as they think (if at all).

Before Christmas the shares touched £7 on an announcement that Proctor & Gamble had signed a joint agreement. Yet, there is no commitment from P&G to pay any form of revenue as of yet.

With still no sign of that elusive first ever revenue cheque and with £10m cash in the bank and annual cash burn of £8m, there isn't much leeway for slippage. Ahead of a site visit next month, Evolution advises clients to sell into any strength.

The revelation that its board had rejected a £70m or 67.7p a share bid approach from an un-named UK-listed company saw shares of windfarm developer Renewable Energy Generation climb 9p to 53p. REG said that takeover discussions with the potential suitor had ended, with the latter confirming that it would not make another offer for the company. Major REG shareholders include Utilico Investment Trust (21.3%), Henderson Global Investors (15.9%) and Artemis Investment Management (10.3%). Word is they agreed with the board's belief that the bid significantly undervalued the company.

Spreadbetting firm Worldspreads shed 8.75p to a 52-week low of 48.25p after forecasting a small loss for the year to end March 2011. Incremental revenue from new territories 'has not yet materialised'.

Speculative demand sparked by news of the start of drilling at its La India project in Nicaragua helped Condor Resources advance 1.25p to 6.25p. Mobile Tornado, the telecoms minnow, buzzed to 13p and closed 0.5p higher at 10.5p, after signing a deal to deliver Push To Talk services in South Africa.

Plymouth-based property developer and port operator Sutton Harbour closed flat at 38.5p despite quoted investment company Crystal Amber's (unchanged at 88.5p) purchase of a further 275,000 shares to take its shareholding to 12.14%. Sutton sold its airline business, Air SouthWest, to Eastern International Aurlines for £1.5m. It still has to decide what to do with Plymouth Airport.

UBS began coverage on Melrose, 3.9p better at 319.3p, with a 12-month target price of 415p. It says the industrial acquistion vehicle is run by a strong management team which will continue to do deals. Dynacast, representing about 20% of Melrose, is likely to be sold in the next few months for a better-than-expected £370m to £400m. Cash will be then returned to shareholders. Meanwhile, it is on the acquisition trail.