Market Report: BBA continues to prove value of demergers
Saturday 18 November 2006
There is a common debate among investors over the short-term merits of mergers and acquisitions, and there are certainly plenty of examples of mergers that have failed to deliver anything even loosely resembling shareholder value.
Carlton and Granada, Glaxo Wellcome and SmithKline, BTR and Siebe all merged amid much fanfare only to disappoint and all have taken several years to turn around. In fact, it is often possible to make a better argument for pulling companies apart rather than gluing them together.
BBA Group looks to be a case in point. It completed the demerger of its materials arm, Fiberweb, after Thursday's EGM. BBA is now trading as BBA Aviation, and both stocks enjoyed strong debuts as investors and analysts enthused about their newly single status. Fiberweb listed at 142p and closed at 176p, up 34p, while BBA Aviation, up 12p at 286.5p, benefited from upgrades from brokers UBS and Dresdner Kleinwort.
Among blue chips, the falling copper price put a big dent in the mining sector, as nine of the top 10 blue-chip fallers were miners. Xstrata led the way, with a 109p fall to 2154p, despite Deutsche Bank resuming coverage of the stock with a "buy" recommendation and a 2,880p price target. Copper miners were in the red, with Antofagasta down 21.75p to 457.75p, Vedanta Resources, off 52p to 1,236p and Kazakhmys 46p weaker at 1,136p. Broker Numis Securities suggested investors look for a pre-Christmas sell off as a buying opportunity.
Wolseley and Hanson were out of favour as bleak US housing data reported that new home builds have reached a six-year low, 14 per cent lower than in September and 27 per cent lower than last October. Both companies are heavily involved in the US housing market, but investors are increasingly concerned about trading. Wolseley fell 26p to 1,190p while Hanson lost 7.5p to close at 751.5p.
On the upside, rumours of a bid for the confectioner Cadbury Schweppes continue to build momentum, despite the fact that with a market capitalisation of more than £16bn including debt, it would be the largest ever European buyout. Traders are looking at the wave of private-equity buyouts taking place in the US at the moment and many do not think the price tag is the main stumbling block. Cadbury's added another 9.5p to close at 541.5p.
The weak mining and oil sectors dragged the FTSE 100 down 62.9 by the close to 6,192, the biggest single-day sell off for a month. An uninspiring opening on Wall Street left most London traders with little reason to change positions ahead of the weekend.
Second-line oil stocks were also out of favour with investors as the oil price hit a 12-month low. Brokers have been bearish on the sector in the past few weeks, but traders who have been in the sector for any length are still sitting on healthy profits. Venture Production fell 60.5p to 830p, followed by Petrofac, 20p off at 354p and Dana Petroleum, down 79p at 1,260p.
Traders are betting on a bid for the waste-management group Augean, 20.5p better at 148p, a month after it warned on slower growth. Investors believe the company has been unofficially up for sale for some time, but management are unwilling to accept anything less than 180p a share. The bid talk was sparked as 7 million shares were crossed at 157.5p.
Empyrean Energy investors are used to a roller-coaster ride, thanks to the company's policy of weekly drilling updates. This week, Empyrean has given two drilling updates, and yesterday's sent its shares up 12.5p to 83p. However, some traders said the company has only a 6 per cent stake in the Sugarloaf-1 field, and claimed the statement gave little new information.
Market-makers report a surge in interest in Islamic Bank of Britain. Its shares rarely register on most investors' radar screens, but the volume so far this week has been significantly higher than usual. IBB shares leapt 4.75p to 23.75p yesterday as rumours of a bid for the company did the rounds.
The word in the market is that Kryso Resources, a mineral-exploration firm with assets in Tagikistan, is to announce a positive assay result on its nickel and copper project next week. Although its shares were unchanged at 8.5p, investors expect a good bounce once the announcement is made.
The property investment group Dawnay Day Treveria completed one of the biggest AIM placings of the year, raising €300m at €1.12 per share. Citigroup handled the placing and acted as lead manager for the group. DDT shares ended at €1.21 as more than 20 million shares changed hands.
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