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Yesterday's trading: Water mergers ahoy

By Geoff Foster for MailOnline
Updated: 02:45 EDT, 1 February 2007

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As Dutch utilities Essent and Nuon put the finishing touches to an agreed £17bn merger, punters dived into the UK water sector amid revived rumours of imminent takeover activity.

Kelda, one of the regional water companies privatised in 1989 and originally known as Yorkshire Water, sizzled amid whispers of a possible bid from United Utilities (2½p dearer at 763½p) or a cash-rich infrastructure fund. The shares touched 956p before boiling over to finish 6p higher at 933p.

After a consortium led by Australian bank Macquarie emerged as the winner in the October auction to acquire Thames Water, Britain's biggest water company, dealers speculated that it would not be long before disappointed bidders turned their attentions to other stocks in the sector.

Guy Hands' Terra Firma and other thirsty infrastructure funds continue to stalk the sector and should be attracted to Kelda because of its ungeared balance sheet.

Utilities are forever attractive to predators because the system of economic regulation under which they operate gives them known rates of return over five-year cycles.

Pennon improved 1½p to 567½p and Severn Trent 11p to 1415p.

The Footsie was given an early lift by Tata of India's decision to fork out a highly generous £6.2bn, or 608p-a-share cash offer for former British Steel group Corus, 38½p up at 601½p.

The index rose 15 points before drifting on lack of follow-through support to end 38.9 points easier at 6203.1.

Wall Street retrieved an initial 18-point deficit to trade 51 higher after data showed that the US economy grew at a strongerthanexpected pace in the fourth quarter.

Dealers were then even more confident that the Fed would leave US interest rates on hold at 5.25%, which it did.

Kingfisher, the struggling B&Q do-it-yourself group, climbed 4¼p to 239¼p after broker JP Morgan moved to overweight from neutral and lifted its price to 265p from 245p.

Rival Panmure Gordon recently said that there is no quick fix for B&Q and there is better value elsewhere in the sector.

As plans to offer its senior directors unlimited free first class travel on flights anywhere in the world were rejected by the airline's senior management, British Airways nosedived 13¼p to 537¾p.

Cautious broker comment and no sign of the strongly rumoured sale of the Financial Times dragged media group Pearson 14p lower to 802p.

Heavy buying ahead of the annual results due later this month lifted PartyGaming 2p to 29½p on turnover of 77m.

Computer software group Misys advanced 6½p to 242½p on hefty turnover of 34m after Deutsche Bank upgraded to buy from hold and hoisted its target price to 300p from 190p.

The broker believes the downside risk to short-term earnings expectations is already in the price.

Yield considerations and vague takeover talk helped industrial and automotive equipment group Tomkins rise 7¼p to 272¼p.

Online auctioneer QXL Ricardo advanced 10½p in a thin market to 805½p after former president and chief executive of NTL Simon Duffy was appointed executive chairman.

Pub operator Mitchells & Butlers frothed 13p higher to 696p on persistent speculative buying amid hopes that property tycoon Robert Tchenguiz will bid again.

He made an abortive £4.4bn or 550p-ashare offer last year and recently raised his stake in M&B by a further 3%, giving him a 15% holding worth more than £439m.

Rumours suggest he plans to use his significant shareholding to pressure management into turning its property assets into a tax efficient Real Estate Investment Trust.

Marwyn Capital's Concateno rose 3p to 141½p following the acquisition of Tricotech, the hair testing business for recreational drug abuse for £11.25m. The deal was partly financed by a £8.2m placing of shares at 130p a share by Collins Stewart.

Akers Biosciences held at 45p but should prosper today. Word is chief executive Raymond Akers has put his money where his mouth is and purchased 1.5m shares at 40p a share. He and his family now own 7.3m shares, or 12%.

• Dealers expect Mozambique-based miner Baobab Resources to trade at a useful premium when dealings get under way at 10p on Aim today. The company has raised £2.2m and will use the flotation proceeds to fund exploration for the next 15 months.

Baobab has a total of 21 licences and has already acquired a portfolio of mining projects in the East African country. RAB Capital sits on 26%.

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