Dealers were dialling up Cable & Wireless yesterday, as the market continued its upward surge. The telecoms company was 5.25p better at 179.5p, with nearly 83m shares traded, on talk that Deutsche Telekom could be plotting a takeover. Neither side would comment, but dealers said investors were keen not to miss out on the next bid, whichever sector it was in.
C&W had already been lifted this week by a positive note from investment bank Credit Suisse, which increased its price target on the shares from 124p to 200p.
On the theme of not wanting to lose out on bids, traders were also punting electrical retailer DSG, the former Dixons, on talk of a private equity-backed managment buyout, and insurer Prudential, said to be in the sights of the bank HSBC or rival insurer Aviva. Aviva's merger talks with the Pru foundered last year, but yesterday, as it reported an 18% rise in 2006 sales, it seemed to hint it might be interested in reviving them. DSG rose 3.75p to 173.75p; the Pru was 8.5p better at 721.5p; Aviva added 15p to 847p.
There was also some speculative interest in Imperial Tobacco, 29p higher at £ 22.14. So despite disappointing results from oil group BP and an opening fall on Wall Street, the FTSE 100 climbed 28.4 points to 6346.3.
BP fell 6.5p to 535p despite the oil price edging higher. The company cut its growth targets and raised its spending plans. "In some respects the market will assume BP has kitchen sinked ahead of new chief executive [Tony Hayward] taking the reins," said Citigroup. Charles Stanley said the results were "underwhelming" and cut its recommendation from buy to accumulate.
On a more upbeat note, banks were in favour after a positive review of the sector by Credit Suisse, which pointed out that they rarely passed on the full benefit of interest rate rises to their deposit account holders. "Assuming therefore that the base rate moves once more to 5.5% in May, we think the overall impact on the industry of the spread widening this year could be more than £1.5bn, of which £1.2bn, or 5% of group profits, would fall into the domestic retail banks sector," said Credit Suisse. It said the main beneficiary was likely to be Lloyds TSB, which it upgraded from neutral to outperform. Lloyds rose 8p to 598.5p; Northern Rock was 18p higher at £12.40.
Retailers were also in demand as the J Sainsbury story rumbled on and the British Retail Consortium reported that sales growth in January was the strongest for three years. Sainsbury's added 6.5p to 516p on hopes that at least two private equity bids would emerge, though, as one dealer noted, "We haven't had the first one yet." Wm Morrison Supermarkets was caught up in the excitement, up 8p to 311p, as UBS raised its price target from 340p to 360p.
Aerospace group BAE Systems climbed 11.75p to 439.25p after defence spending was highlighted in the US's proposed budget for 2008.
"The procurement element of President Bush's $620bn defence budget is extremely strong, "said broker Panmure Gordon," which should delay a defence de-rating, which is good news for BAE ... There are big double digit rises for most of the services, including a 29% increase in the budget for ships and 18% for aircraft." The broker was more negative on Rolls-Royce, up 7p to 488p. It said: "Buried in the detail of the US defence budget was another attempt by the US Air Force to cancel the alternative engine for the Lockheed F35 Joint Strike Fighter. This engine, the F136, is being developed by Rolls-Royce and GE."
ICI was 12p higher at 475.25p after an upbeat note from broker Collins Stewart, while broadcaster ITV added 1.75p to 112.5p. The company has agreed to sell its 9.99% stake in Liverpool FC to the American tycoons who have agreed a takeover. It gets £17.4m in cash.
Back in the oil sector, Gulf Keystone Petroleum was up 2.25p to 72.5p as it confirmed it had received a takeover approach. The Algeria-focused group said the offer was 78p a share, less than traders had been hoping, and was thought to come from the Middle East. Evolution Securities said the price was not a full one: it has a 102p target on the shares, but admitted the management may see the offer as "a bird in the hand".
The higher oil price hit cruise group Carnival, down 92p to £26.27 on worries over rising costs. It was weaker on Monday after disappointing results from rival Royal Caribbean.
Elsewhere, chipmaker Arm added 9.25p to 130.7p after it reported an 8% rise in fourth-quarter revenues. Evolution said the topline sales growth was below expectations but the company had a record order backlog. Document capture group Dicom rose 16p to 239p after a strong set of half-year results, with operating profits up 9%.
Meanwhile, a second suspected letter bomb in two days was found yesterday, this time at business services group Vantis, down 5.5p to 220p.
Finally, computer games retailer Game fell 8.75p to 138.5p. After Altium Securities cut its rating on Monday, Shore Capital followed suit yesterday. Shore said it was time to step back after recent rises in the shares.
Biodiesel powers
Dealers were intrigued by a 9.25p rise to 36.75p at biodiesel firm Biofuels Corporation, which recently appointed a new finance director and has had a number of problems at its Teesside plant over the past few months. The company is looking at a refinancing and said in December its banking facilities had been extended until the end of June. But it warned it may require additional funding from the beginning of April. This could amount to around £10m, and traders suggested it may not wait until then before attempting to raise the money. Some said yesterday's rise could be down to news on Monday that Deutsche Bank, which had previously been cutting its stake, had started buying again and now held 3% of the company. Others speculated a predator may be casting its eyes over the company.