Market report: Wednesday close

By This Is Money
Updated:

 

Bid speculation about Royal & Sun-Alliance and J Sainsbury couldn't inject life into the FTSE 100 today, as London caught the cold that had been brewing overnight on Wall Street.

The index closed 39.2 points higher at 6559.6 despite fairly frantic dealing in the insurer that is hard to love and the retailer that is held in affection by millions. Most intriguingly, it seemed clear that secretive Qatari investors Delta Two intend to take their stake in Sainsbury's all the way up to the 29.9% that is the maximum allowed before a bid has to be made.

Delta took a 17.4% stake in April, sparking speculation it wanted to take over the company or force it to break up and sell off the properties. Since then, Delta has indicated it is supportive of Sainsbury's management, but this hasn't stopped it agitating for change.

The talk among City traders is that Paul Taylor, the tycoon who runs Delta, recently approached members of the Sainsbury family with an offer for their 18% holding at 610p a share.

Having been rebuffed, Delta now seems intent on building its stake in the open market. Millions of shares changed hands today - and a huge chunk of them went at 600p. The supermarkets chain's shares gained 11p to 562p on the news. Depending on who you believe, Taylor is either a close confidant or a sworn enemy of Robert Tchenguiz, who also has a stake in Sainsbury's - a company he regards as a property business that sells food as a sideline. He would probably back any private-equity bid for it.

The less-plausible rumour was that American insurance giant AIG is eyeing a bid for Royal & SunAlliance, which led the FTSE leader board with a gain of 6.1p to 156.5p. AIG has a market capitalisation of about £100bn, so it could swallow the £5bn Royal & Sun for breakfast, but we've been here before.

AIG has been mooted as a bidder for practically every major UK insurer, with Standard Life often in the frame.

Meanwhile, Merrill Lynch joined Essex girls and football hooligans by developing a taste for Burberry - the fashion chain with the checks.

The broker upped its rating on the luxury goods maker to buy from neutral, predicting that sales of its handbags will rise. The company, which says it has long-since shaken off its 'chav' image, has seen its shares plunge more than 8% since its year-end results last month.

The broker says the stock now has 'about 17% upside potential'. The shares put on 13p to 648½p on the news.

Merrill turned negative on waste disposal company Biffa, cutting its price target to 295p. The shares got binned, down 7p at 286p. Investors were also unimpressed by an upgrade for Vodafone from Goldman Sachs. Voda put on a mere 1.2p to 158.2p. Bear Stearns did its best for the cause, upping BT to outperform with a price target of 404p. A note from the broker said: 'We believe further upside exists, namely in broadband, cost-cutting proceeds, lower pension contributions and ultimately further shareholder returns,' said. BT shares added 1¾p to 323¾p.

There was also a pat on the back for pubs group Mitchells & Butlers, the company behind the All Bar One chain and Bass bitter. JPMorgan raised its price target to 850p, based on the increase in the value of the firm's property portfolio.

The bank couldn't resist pointing out that it still prefers JD Wetherspoon and Punch Taverns as investment opportunities. M&B shares edged up 11½p to 853½p.

As lunchtime passed, eyes turned to the imminent opening of Wall Street. The Dow Jones lost 129.95 points to 13,295.01 yesterday.

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TAKING STOCK - YOUR AT-A-GLANCE GUIDE

BANKING AND FINANCE

Northern Rock may well be the main quoted beneficiary of the fall in HBOS's share of the mortgage market at the start of the year, according to Keefe, Bruyette & Woods. Cheltenham & Gloucester captured market share in January when it held its rates, but Northern has consistently been picking up business since rates started rising.

BUILDING AND PROPERTY

Citigroup opened coverage of Land Securities, the UK's largest real estate investment trust, with a buy rating. It says Land Securities has a high-quality property portfolio that should withstand falls in the market. The broker called for the company to give better information about its 'business dynamics and cash flows'.

John Clare, the boss of electrical retailer DSG International, says manufacturers should phase out the standby function on goods such as TVs to help save energy. DSG, which owns Currys and PC World, said companies should react to consumer demands. Analysts claim that Britons each spend £37 a year leaving appliances on stand-by.

ENGINEERING

Airbus has so far failed to win over its key customers to the planned A350 midsized long-haul jetliner despite making big changes to the design a year ago after consultation with its clients. The shortfall in orders clears the way for rival Boeing to swoop in and dominate further the market segment.

HEALTH

Debts incurred by hospitals under the Private Finance Initiative hit patient care, says Dr Jonathan Fielden, a leading member of the British Medical Association. Fielden told Radio 4 that the debts are affecting 'clinical priorities'. Some NHS Trusts have had to borrow money to pay off private contractors, he warns.

INDUSTRIALS

Inflation driven by China's industrialists and its consumer economy is triggering wider concerns about global prices. Analysts today fretted that with Chinese inflation at more than twoyear highs, the US would face more expensive imports, forcing the US Federal Reserve to push interest rates higher.

LEISURE

China's rip-offs of Western leisure and consumer brands are showing signs of growing out of control, European Trade Commissioner Peter Mandelson said. He was speaking as he held talks with Chinese commerce minister Bo Xilai in Brussels. Big brands such as Burberry and Prada are commonly faked and sold in Chinese markets.

MEDIA

Huntsworth, owner of City public relations outfit Citigate Dewe Rogerson, has pulled in new clients ranging from Coca-Cola to the Football Association since the start of the year. Broker Panmure Gordon is particularly keen on wins in the healthcare sector including Novartis and VTB of Russia. It rates the shares a buy at 103p, with a 125p target.

NATURAL RESOURCES

Chinese imports will see the price of copper and nickel continue to fall in the coming months, say City analysts. Michael Widmer at Calyon said: 'There is downward pressure on copper emanating from Chinese import figures.' However, he added, possible strikes in Mexico could counterbalance the Chinese effect.

RETAILING

Ted Baker shares have much further to rise, says Numis, which upgraded the stock to a buy after a trading statement from the clothes company yesterday. The broker sets a target price of 770p, compared with the current level of about 573p. Numis says new licensees in the Far and Middle East are performing well.

SUPPORT SERVICES

Stockbroker Seymour Pierce has raised its recommendation to clients on computer services group Civica, which yesterday said it had received a bid. The broker shifted its rating from underperform to hold, saying that despite its poor financial performance, management is clearly keen to sell for the right price.

TECHNOLOGY

More than 65m satellite navigation systems are likely to be sold worldwide during 2012, which is more than three times the number shipped in 2006, according to technology research group iSuppli. That's good news for the market leader TomTom, which is listed on the Dutch arm of Euronext.

TELECOMS

Deutsche Telekomhas ruled out selling its T-Mobile business in the United States despite calls from some investors for it to offload the division and return cash to shareholders. It also said it would hold off from expanding in emerging markets while it concentrates on countries in which it already operates.

TRANSPORT

Container ports operator DP World will sell bonds worth up to $5bn (£2.5bn) to refinance old debts and fund expansion, according to the credit rating agency Standard & Poor's. DP, owned by the government of Dubai, will issue conventional and Islamic bonds 'in the near term', S&P said. DP has 42 terminals around the world.

UTILITIES

Binmen group Biffa suffered a deluge of downgrades from brokers today following yesterday's disappointing news on trading. Lehman Brothers and Morgan Stanley joined Citigroup in cutting their share price targets for the group, whose shares dropped 9p to 284p today on top of yesterday's 29p fall.

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