Market Report: Bid hopes send housebuilders through the roof

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The Independent Online

Talk of further consolidation among housebuilders set the sector alight yesterday. Barratt Developments rose 26.5p to 877.5p, Bellway added 28p to 998p, George Wimpey improved 11p to 447.75p and Bovis Homes gained 10p to 693p as traders piled into the sector in the hope of cashing in from the next bid.

Persimmon's bid for rival Westbury earlier this month sparked the speculation. Analysts believe that a counter offer for Westbury from either Barratt or George Wimpey cannot be ruled out. A tie-up between some of the industry's smaller players is also very much on the cards. A marriage of Redrow and Bellway or Bovis is seen as a possibility.

Westbury became more vulnerable to predatory interest when it last month posted a sharp drop in interim profits. For the first half of its financial year, the group suffered both from a fall in the number of houses it sold and from rising labour and raw material costs.

Analysts believe that a similar slip-up by one of the sector's remaining players would leave it facing the same fate as Westbury.

The FTSE 100 index lost 1 point to close at 5,497 amid profit taking after Friday's strong gains. Among FTSE 100 stocks, GlaxoSmithKline dropped 58p to 1,439p after the US Food and Drug Administration proposed restrictions on its top-selling asthma treatment Advair. The agency suggested that the drug should be used only after other medicines have failed to help. Credit Suisse First Boston, broker to GSK, downgraded its rating on the stock to "neutral" from "outperform". The Swiss broker said: "We see this as a potentially compromising a significant proportion of the future growth of US Advair."

Cadbury Schweppes ticked 2.5p lower to 565p amid worry about a sharp slowdown in US fizzy drinks sales. According to Panmure Gordon, volumes dropped by 8 per cent last month and the broker warns that competition across the Atlantic is likely to hot up as both Coke and Pepsi gear up for a period of major promotions in an attempt to kick start top-line growth. Panmure fears that downgrades to Cadbury forecasts could be on the way and urged its clients to sell the stock.

The gold price hit a fresh 18-year high, driving Peter Hambro Mining 7.5p higher to 832.5p, Bema Gold 2.5p better to 171.5p and Golden Prospect 1.25p better to 52.5p. John Meyer, mining analyst at Numis Securities, expects the price of gold to continue to gain ground for some time to come. He suggests that demand for the commodity from Russia's central bank could well prove to be a major driving force behind the price in the near term.

Mr Meyer pointed out that Russia's gold currency reserves rose by 3.4 per cent in October. Recent comments from a central bank official hinted that the former Soviet country might try to raise its gold exposure to 10 per cent of reserve. Presently, the commodity accounts for 5 per cent of Russia's foreign currency reserves and if this figure is to double, it would have to buy a further 500 tonnes of gold - which is significantly more than South Africa's current annual production.

SSL International rose 4.75p to 278.5p ahead of today's interim results from the healthcare group. Analysts expect SSL to report a 28 per cent jump in pre-tax profits to £24m. However, most traders holding the stock are hoping the group soon gets a bid approach. A tie-up with a major international player would make a lot of sense, given the distribution cost savings such a deal would unlock.

The retail sector enjoyed strong gains pretty much across the board. Next gained 36p to 1,392p, GUS added 14p to 890p, Kingfisher put on 3.25p to 221.25p and DSG International ticked 2.75p higher to 150p. WH Smith, one retail stock which has managed to avoid the heavy losses suffered by the majority of its peers this autumn, jumped 6.5p to 381.5p on rumours of a bid for the group from a US private equity firm. Last year, Permira held takeover talks with WH Smith but these failed due to the size of the retailer's pension fund deficit. Permira's offer was pitched at 375p a share. However, any bid this time around will have to be well above this level.

Finally, Shield Capital returned to trading on AIM having completed the reverse takeover of Aspen Clean Fuels. Shares in the group rose 0.13p to 8.25p in response to the £14.3m deal. Aspen supplies environmentally friendly fuels for use in motorised tools such as chainsaws and lawnmowers, and also in the engines that power some mopeds and boats. Its products are sold throughout Europe and the group boasts impressive profit margins. During the first half of this year it achieved a pre-tax profit of £1m on sales of £8m.

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