FTSE in-depth: Sage soars on takeover talk

By Geoff Foster for MailOnline
Updated: 03:07 EDT, 11 May 2011

Having recently seen perennial techno bid favourite Micro Focus get a long-awaited approach from US private equity group Bain Capital, and dreaming of a double win, professional punters responded to revived gossip that Sage Group's days of independence are numbered.

Foster: Sage has begun its recovery from the economic downturn.

They chased shares of the accountancy software giant up to 299.5p before they closed 10.2p higher at 296.2p as rumours of a £5.9bn or 450p a share cash bid from SAP, the world's largest business software company, intensified.

Sage has begun its recovery from the economic downturn, recently announcing strong half-year figures and a return to organic growth in all of its regions in the six months to the end of March.

SAP is cash-rich and is known to be on the acquisition trail and apparently keen on swallowing Sage before the UK group, which has drastically reduced debt levels, can itself make a significant acquisition.

Broker Espirito Santo is a fan of Sage without a bid. It believes the group is well positioned to deliver double digit earnings per share growth from 2012 and as a result of strong cash generation believes it could potentially return £200-400m of cash to shareholders by the end of 2013. Its target price is 345p.

Awaiting agreed bid terms from Bain, software firm Micro Focus touched 392.1p before retreating on profit-taking to finish 0.6p easier at 384.45p.

Across the Pond, this year's steady stream of blockbuster bids continued apace with Microsoft agreeing to pay a hefty £5.2bn for internet phone service Skype.

Wall Street responded with an early gain of 65 points and that helped an already firm Footsie end the day with a flourish. It closed 76.2 points higher at 6018.89.

Its early strength owed much to impressive trading statements from constituents Imperial Tobacco (67p better at 2223.5p) and Intercontinental Hotels (49p up at 1297.5p).

Mining stocks were also back in favour again after China posted its biggest trade surplus in four months for April, with exports hitting a record. Dealers said it is likely that demand for metals will remain strong despite the recent move to higher interest rates.

The overall volume of business though was nothing to write home about with many fund managers still nervous about a possible restructuring of Greece's debt which could, and probably would, upset the applecart.

Reflecting the firmer market trend and buying ahead of today's first-quarter trading update, insurance giant Prudential rose 21p to 770.25p. Consensus estimates are for new business volumes of £854m, up 5.8%, and new business profits of £456m, up 6.8%, on last year's first-quarter.

A leading market-maker pulled the plug on Aberdeen-based North Sea oil explorer Xcite Energy after a much anticipated reserves assessment on its Bentley field carried out by third party consultants TRACS fell millions of barrels short of market expectations.

It noted 28m barrels recoverable, with a further contingent resource on a 'best estimate' basis of 87m barrels, making a total of 115m barrels. Previously, Xcite's management had spouted off about reserves 40% higher at 160m.

Taking no CFD - contract for difference - or spreadbetting punters prisoner, the marketmaker smashed the speculative shares lower and the close was eventually 79p or 25pc lower at 237.5p.

Seemingly undeterred, Arbuthnot left its strong buy recommendation and 600p target price intact. The broker said this is another important milestone for Xcite following the drilling of the previous well.

It continues to make progress on its development plan which should be submitted for approval in the short term in anticipation of development drilling starting in the fourth quarter 2011.

Coastal Energy, the oil and gas explorer with assets in Thailand, gushed 38.5p to 413.5p after announcing a discovery at the Bau Bau North B-02 exploration well.

Vague bid talk continued to stimulate interest in luxury clothes group Burberry, 27p up at 1328p.

Online retailer Ocado improved 5.7p to 232.95p with brave buyers obviously hoping to hear some upbeat news about current trading at today's AGM.

Broker Shore Capital reckons Ocado should have benefited from the 'commercial trinity' of a late Easter, warm weather and an extra Bank holiday due to the Royal Wedding.

Nevertheless, it still reiterated its sell recommendation as the company is not expected to pay a dividend for some time.

Acquisition news lifted Halma 10p to 381p. The safety, health and sensor technology group, has acquired Ohio-based Kirk Key Interlock Company from Owens Holdings and a number of private individuals for £9m. Kirk Key will be bolted on to Halma's safety lock businesses.