Market Report: Bid rumours put fizz into Cadbury Schweppes

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The Independent Online

Such has been the frenzy of speculation over the past few weeks, the London market is almost at a point where there is hardly a stock left that does not have some takeover premium in the price.

A sign that traders are growing weary of relentless corporate activity talk came yesterday, when rumours of a bid for the drinks and confectionery group Cadbury Schweppes by the Swiss food giant Nestlé, sparked an increase of only 1.2 per cent in the stock, up 6.5p to 555p.

One trader said: "People are suffering from a bit of speculation fatigue. Most of the stories doing the rounds today are old ones, and that happens when there isn't much real news out there to get prices going. Nestlé has been talked of as a potential suitor for Cadbury in the past but the regulatory issues a bid would encounter probably rule it out."

The bond markets gave some credibility to the story as Cadbury's credit default swaps widened from 32 to 36 basis points, indicating demand for credit protection. Typically, credit quality declines in a takeover situation, particularly if there is a large element of debt involved.

Lack of developments on the takeover front resulted in declines for Corus Group, rumoured to be a target for the German steel group ThyssenKrupp, and for Centrica, as details of a bid from the Russian gas giant Gazprom once again failed to materialise. Corus dropped 1.75p to 68.25p, while Centrica gave up 2p to close at 281.5p.

It was a mixed day for the wider London market, with weakness in the oil sector being offset in part by gains in banking and mining stocks. The FTSE 100 was flat, falling 1.2 points to 5,792.3 on low volume. Sentiment was dragged down for most of the day by fears over more threats of US legislation against the online gambling sector. PartyGaming fell 5p to 123.5p, while the rival888 Holdings plummeted 9.75p to 187.75p.

Strong results from the Swiss bank UBS drove some financial stocks higher, but the lack of integrated investment banks on the London market held gains back to the lower single digits. HSBC improved 10p to 955.5p and Barclays closed 5p higher at 655.5p.

British Land may have pleased the markets with better-than-expected third-quarter results, unveiling a 10.7 per cent increase in net asset value to 1,365p, but the main beneficiary of its performance was the rival Land Securities. British Land rose 12p to close at 1198p, while Land Securities surged 47p to 1,815p, a rise of 2.6 per cent. Hammerson also benefited, rising 8.5p to 1,097p.

The heavyweight US broker Merrill Lynch lent support to Rolls-Royce, making the aircraft engine maker the best performer in the FTSE 100. In a note to clients, Merrill argued that its valuations should be more in line with business service companies such as Capita and Serco because of its non-cyclical after-market and defence revenues. Using that valuation method, the broker believes Rolls could be valued at anything between 501p and 609p. Shares in Rolls rose to 439p, a jump of 11.5p.

Merrill was also positive about the insurance underwriter Jardine Lloyd Thompson, upgrading the stock from "sell" to "neutral", citing the stock's underperformance relative to its peers since the start of the year. The shares rose 19.5p to 472.5p.

Nick Johnson, at Numis Securities, is also bullish about JLT. He said: "We think the company is making good progress on new business wins and see attractive earnings growth combined with an undemanding forward price-to-earnings ratio of about 11 times, based on our own forecasts." The company is due to report full-year figures on 7 March.

The top performer in the FTSE 250 was the embattled retailer MFI Furniture, rising 12.75p to 86.25p, a climb of 17.4 per cent, as the company announced the sale of its French kitchens business for a better-than-expected price of €135m (£93m). It is well known that the stock is the most shorted in the market, and traders reported a heavy volume of 63.3 million shares changing hands as short sellers again rushed to cover positions.

Shares in Victoria Oil and Gas were once again well bid, rising 17.5p to close at 257.5p. The stock has more than recovered since a post-results sell-off and traders are also confident that recoverable reserves at its Russian oil and gas fields will soon be upgraded for a second time.

In the small caps, the gold miner Palladex rose 1.5p to 10p after it announced better-than-expected gold deposits in its Aksur East project in Kyrgyzstan. There also seems to be no stopping Central African Mining as the stock rose another 3.5p to 41.25p. The Phil Edmonds -backed miner has risen almost 300 per cent since the start of the year.

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