Investors remain cautious on Spain and Italy and hold fire ahead of Sunday’s Greek election
Talk of bid interest in Drax, owner of the coal-fired power station in Yorkshire, returned to help push the company’s shares more than 2% higher, with British Gas group Centrica once more the name on traders’ lips.
Drax closed up 12.5p at 556.5p on suggestions of a possible offer of between 700p and 750p a share. Analysts have long thought a move on Drax by Centrica, down 4p at 312.5p, but are not sure about the timing. Last month Dominic Nash at Liberum Capital said:
Once [Drax] is on course to reduce earnings volatility, and transform into a major renewable stock, we see merger interest from Centrica. We re-iterate our buy recommendation and 670p price target. We see a potential further 160p a share synergy value with a merger.
Still on the takeover tack, TalkTalk added 4.1p to 168p on vague talk of possible interest from Germany and French companies, with a price of up to 300p mentioned.
Overall, investors continued to live on their nerves, with Spanish bond yields jumping above 7% – seen as the danger level – after Moody’s downgraded the country’s sovereign debt. Worries about Italy being next in the firing line continued, while many traders were uncertain which way to go ahead of Sunday’s key elections in Greece. But with a 120 point rise on the Dow Jones Industrial Average by the time London closed, the FTSE 100 finished off its worst levels, down just 16.76 points at 5467.05. The US market was lifted by hopes of more stimulus for the economy when the Federal Reserve meets next week, following downbeat inflation and jobs data.
Elsewhere BSkyB lost 24.5p to 671p and BT fell 7.4p to 201.7p on fears the two had overpaid for Premier League television rights. BSkyB is paying £2.3bn over three years while the telecoms group – which ousted incumbent, the Disney=owned ESPN – will cough up £728m for 38 games. The figures equate to around £6.6m a game.
Paul Richards at Numis said:
Although the price increase was higher than our forecast, we are pleased that the uncertainty over Premier League rights has been resolved. We retain our positive stance, though the trimming of forecasts combined and the lower ITV share price feeds through to a price target of 815p (was 825p) and following the resilience of the group’s shares over the past quarter our recommendation is now add (was buy).
Banks edged higher despite the UK government pressing ahead with plans to ringfence their high street operations from their higher-risk investment banking arms. Royal Bank of Scotland rose 6.9p to 229.4p, Barclays was 4.45p better at 192.75p and Lloyds Banking Group up 0.12p at 29.75p.
But Glencore lost 13.3p to 341.7p and Xstrata dipped 20.4p to 899.6p on suggestions that shareholders might after all vote down the biggest mining merger in history, due to the retention packages lined up for a number of senior executives. With the shareholder spring claiming WPP’s Martin Sorrell as its latest victim, traders are wondering whether investors could rebel against the Xstrata payouts.
After concerns from some shareholders, Icap increased the amount it is prepared to pay for the junior stock exchange owned by Plus Markets from a nominal £1 to £500,000. The deal must complete by 21 June, otherwise the Financial Services Authority will begin steps to revoke the exchange’s recognition. Icap slipped 4.1p to 350p, while Plus edged up 0.05p to 0.375p.
Among the mid-caps IT group Computacenter slumped 43.7p to 313p after a profit warning. It said it would have to hire 700 extra staff to meet demand, but this would help push costs this year up by an extra £7m.
Heading in the other direction was Russia-focused gold group Petropavlovsk – formerly Peter Hambro Mining. It jumped 14% after raising its production guidance. It closed 59p higher at 469.9p as it said its target for 2012 was now 700,000 ounces, up from 680,000, and it had commissioned two new processing lines at its Pioneer and Albyn projects. Analyst Peter Mallin-Jones at Canaccord Genuity said:
Better-than-targeted grades and recoveries at Pioneer in the first five months of 2012, coupled with earlier-than-expected capacity expansions at Pioneer and Albyn that were previously excluded from guidance, have given management the confidence to increase the production target by 3% this year.
We believe continued delivery of operational targets and smooth commissioning and ramp up should provide catalysts for the stock. Petropavlovsk is hosting a site visit this weekend, which could boost commentary after analysts eyeball the progress.
A positive update has also lifted WH Smith by 12.9p to 484.6p despite the newsagent group saying like for like sales had dropped 3% in the first 15 weeks of the second half. But gross margins continued to climb, and despite the current uncertain economic outlook, the company said it was confident in the full year outcome. In a buy note, David Jeary at Investec said:
The third quarter update saw an improvement in group like for like performance (-3%) compared with the first half (-5%). This was driven by the high street division despite a tougher comparative last year, and underlines both the resilience of the format and the strength of operational management. This will see us increase high street and group profits by £1m. Recent share price weakness offers a good entry point for a more defensive format, with consistently high free cash flow and the added bonus of growth potential from the travel division.
Brewing group Young & Co lost 10p to 605p after activist investor Guinness Peat – which is gradually disposing of its portfolio of shareholdings – sold its stake for £54m. It had previously held 15.39% of Young’s A shares and 34.16% of the non-voting shares.
Finally Oxford Advanced Surfaces added 19% to 10p on news of a joint venture with a global manufacturer to fund development of its anti-reflective coatings for use in electronic displays.
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