Market report: Yesterday's trading

By Geoff Foster for MailOnline
Updated: 05:13 EDT, 12 December 2006

Dealers smell a rat. Shares in parcels-to-pest control group Rentokil are suddenly the next best thing to sliced bread.

After more than 39m were traded on Friday a further 32m changed hands yesterday as vague rumours of a £3.3bn, or 185p a share break-up bid from a private equity consortium did the rounds. Broker Cenkos also upgraded to buy from sell and lifted its target price to 190p from 140p which left the close 3½p dearer at 161½p.

Analyst David Greenall at Cenkos pointed out that the last seven years at Rentokil has been characterised by profit downgrades, management change, asset sales, and restructuring.

The former darling of the Footsie has become synonymous with chaos. Even the potential takeover by Gerry Robinson and Raphoe in 2006 was a very public farce and the stock has been yet again in 2006 the worst performer of the sector majors.

Greenall reckons corporate action, cost saving potential and improved cashflow now generate 'valuation upside'.

His forecast of a 5.1% dividend yield for 2008 should also make cash-rich fund managers revisit the stock.

Chief executive Doug Flynn is looking to sell the group's electronic security business, which could fetch more than £500m. He recently bought Target Express for £210m in a deal which made it Britain's secondbiggest parcel delivery business.

Merrill Lynch placed a line of 14m shares at 150p last month on behalf of an institutional client who obviously thought the rally had gone far enough. Fidelity on Friday reduced its shareholding by 34.5m or 1.9% to 2.7%. Dealers last night speculated that the 48m-plus shares had possibly gone to one buyer.

Boosted by the battle for control of Corus (27¼p better at 527¼p) and the prospect of yet more mouthwatering merger and acquisition activity to come next year, the Footsie traded 34.6 points up before elevenses.

It then ran out of steam and closed only 7.4 points up at 6,159.8 despite Wall Street's early 47-point rise on the assumption that the Fed will today leave US interest rates on hold at 5¼%.

Rumours of a pending bullish circular drove aero-engine maker Rolls-Royce 16¼p higher to 443¼p.

Drugs group Shire jumped 34p to 1065p on gossip it could be lining up a cash offer for New River Pharmaceuticals.

Shrugging off persistent talk that pre-Christmas trading has so far been disappointing, fashion group Next recovered 30p at 1760p.

Clients of Evolution Securities were intoxicated by analyst Nigel Parson's comments that there is a huge immediate valuation upside for the asset-intense pub companies from the new Real Estate Investment Trust legislation.

Even if they do not elect for REIT status and do not convert, private equity companies will buy them and do it themselves.

Constantly rumoured to be on either Greene King's (39p up at 111½p) or Punch Tavern's (12½p better at 1202½p) shopping list, Wolverhampton & Dudley frothed 50p higher to a record 1790p. Evolution targets a £28 share price in the event of a REIT transaction.

Buying ahead of Thursday's trading update and vague talk of a bid from Adecco lifted recruitment group Hays 5p to 161½p. News of three small acquisitions within the Government funded learning arena lifted Carter & Carter 31½p to 1040p.

Betex rose 2¾p to 38p after announcing its Chinese operation will invest £4.75m to launch a lottery scratch cards in Hebei, one of the largest provinces in China. Revenues generated are expected to be around £60m.

ValiRx improved ¼p to 0.9p on hearing that the European Patent Office has granted a patent for Genelce cancer technology, which its Cronos Therapeutics unit licenses from Imperial College Innovations.

Point-of-sale software provider Focus Solutions soared 9p to 46½p after winning a £360,000 contract from wealth management service provider St James's Place.

Quantica firmed 1½p to 32½p after selling its Training business for £12m cash to Carter & Carter. Broker Bridgewell gave the thumbs up and moved to overweight from neutral and says short-term value is 40p.

PowerFilm, the US developer and manufacturer of thin, flexible solar panels, jumped 30p to 205p. Maiden full year results, due in mid-March, will be 'materially ahead' of expectations.

• DENSITRON Technologies is worth watching at 5½p. Word is the company has won a long and acrimonious legal spat with founder and former chairman Cliff Hardcastle and can now remove the Old Addeyans Football Club from its land at Blackheath.

The land is said to be worth around £2m, more than half of Denistron's market capitalisation. It could eventually be sold and cash returned to shareholders.