FTSE in-depth: Takeover tap is to be turned on

By Geoff Foster for MailOnline
Updated: 03:16 EDT, 26 May 2011

Drip, drip, drip. The takeover tap in the water sector could be about to get turned on fully again.

Foster: Banks pulled their socks up with Barclays leading the way.

There has been a virtual drought since the heavy turnover and fireworks created by the tidal wave of bids between 2006 and 2008 but that is apparently about to change.

Severn Trent shares touched 1501p and closed 7p better at 1489p on sizzling rumours of a £5.7bn or £24 a share cash bid from the Abu Dhabi Investment Company, the sovereign wealth fund of the United Arab Emirates, which has an estimated £400-£540bn of assets.

Severn Trent provides high-quality water and sewerage services to over 3.7m households and businesses in the Midlands and mid-Wales.

Ever since it demerged its waste management business, Biffa, in October 2006, and became a 'pure' player in the water sector, analysts have said it would eventually attract predatory interest.

Dealers heard that should the Abu Dhabi wealth fund show its hand, it would immediately come up against some opposition. EDF of France, the leading European energy player, also has Severn Trent on its radar.

Augean, the AIM-listed hazardous waste storage and remediation business, soared 5.5p or 20% to 33.25p. Buyers piled in after it announced that the Secretary of State for Communities and Rural Affairs has upheld its appeal for the granting of planning permission for the disposal of Low Level Radioactive Waste at its East Northants Resource Management Facility.

Down almost 50 points at the outset on continuing concern about the deteriorating European sovereign debt situation and talk of a possible Greek default, the Footsie bounced back to finish 11.73 points better at 5,870.14.

Wall Street rose 35 points in early trading as dealers shrugged off the 3.6% drop in US durable goods orders in April, the largest drop in six months.

Banks pulled their socks up with Barclays leading the way with a gain of 6.2p to 271.85p. The sector has fallen 20% since mid-February amid growing concerns about penal regulatory measures hampering profitability and exposures to eurozone debt.

Part nationalised Lloyds Banking Group rallied a penny to 50.735p and Royal Bank of Scotland 0.85p to 41.295p. Standard Chartered put on 28.5p to 1594.75p.

Persisting Nasdaq bid rumours saw London Stock Exchange touch 936p and close 22p higher at 930.25p.

With the volcanic ash cloud clearing over Scotland and expectations that flight schedules will soon get back to normal, British Airways and Iberia airlines group IAG recovered 3.5p to 234.15p.

IAG is UBS's most preferred stock in the airlines sector particularly if the ash cloud clears and the cost of fuel remains or indeed falls from the current levels.

Booted out of the Footsie to make way for controversial commodities trader Glencore (2.8p lower at 521.5p), perennial bid favourite Invensys advanced 5.1p to 298.5p. Broker Oriel Securities says the time is now ripe for a break-up bid for the software and computer services group.

Its target price is 360p. Telecom Plus buzzed 41.25p higher to 524p in celebration of better-than-expected annual results showing pre-tax profits up 51% to £27.5m and earnings per share 53% better at 30.1p, The company also announced a major new supply agreement with npower.

Peel Hunt is bullish and says the new deal is designed to encourage Telecom Plus to accelerate growth in energy customers. It will benefit from improving margins if growth targets are achieved.The broker raised its target price tp £6 from 550p.

Speculative buying fuelled by revived Chinese bid speculation lifted Vietnamese oil exploration company Soco International 15.6p higher at 382.95p.

Investment manager Brewin Dolphin softened 0.3p to 165.65p despite satisfactory interims. Funds under management increased 7% to £25bn and pre-tax profits of £22.9m came in around 4pc ahead of analysts' expectations. The dividend is maintained at 3.55p.

Solid annual results lifted software firm First Derivatives 12.5p to 505p. Revenues grew 44% to £36.7m and sales of the company's own software products soared 104% to £12.5m.

Charles Stanley Securities' price target is £6. News that Andrew 'Bert' Black, co-founder of Betfair, has increased his shareholding helped Hydrodec improve 0.38p to 7.75p.

He has backed a £2m debt funding to help build its inventory of feedstock, amid growing US demand for the company's premium quality SUPERfine oil, and to strengthen its balance sheet.