Market Report: Break-up bid for Stanley Leisure looks a good bet

The future of Stanley Leisure was a major talking point in City dealing rooms yesterday and most market professionals were betting on a break-up bid for the bookmaker and casino operator. According to this theory, a private-equity house aims to take control of the company and then sell off the casinos business.

The future of Stanley Leisure was a major talking point in City dealing rooms yesterday and most market professionals were betting on a break-up bid for the bookmaker and casino operator. According to this theory, a private-equity house aims to take control of the company and then sell off the casinos business.

Stanley's biggest shareholder, the Malaysian conglomerate Genting Berhad, would certainly be interested in acquiring the division. It has amassed a 17 per cent stake in Stanley with the aim of wresting control of the company's casinos. Genting also controls 22 per cent of London Clubs International and if it ever got control of both casino businesses it would become a major player in the UK overnight. A private-equity buyer of Stanley would then be left running the group's chain of betting shops.

Analysts agreed with the view that Stanley Leisure is a target for a private-equity house because of its rich asset base and strong cash flows. And with Genting as Stanley's biggest shareholder, any financial buyer is likely to have an important supporter for such a deal. Stanley Leisure finished 0.25p higher at 421.25p yesterday.

In the FTSE 100, Rentokil Initial was easily the best performer of the day, up 5.25p to 167.25p, as Credit Suisse First Boston started following the stock and recommended it to is clients. The Swiss broker slapped a 185p price target on the shares and even supported recent rumours which argued that Rentokil is vulnerable to a private-equity buyout. CSFB said: "It can't be an accident the shares have consistently found support around the 150p level no matter how poor the trading outlook. Run with not too far-fetched assumptions about capital expenditure and the leveraged buyout case can just about be made."

Diageo added 12.5p to 758.5p as Deutsche Bank suggested that the recent underperformance by the stock is about to come to an end. The German broker is convinced Diageo's healthy dividend yield of 3.9 per cent and its planned share buy-back programme will offer support for the stock throughout 2005. In March alone, the drinks giant acquired £125m worth of its own shares in the market, which on an annualised basis is the equivalent of £1.6bn.

AstraZeneca added 12p to 2,098p as a number of hedge funds were heard to be taking large bull positions in the company before Phase-III data from its Cerovive stroke drug. Analysts estimate that in the US alone there are 750,000 recorded stroke cases every year and that it costs about $15,000 to treat each patient. Should AZ secure a mere 10 per cent market share with Cerovive, it could achieve sales of more than $1bn.

MyTravel, down 0.2p to 5.67p, was the most heavily traded stock on the exchange after Royal Bank of Scotland sold its stake of 1.3 billion A shares in the company through Credit Suisse First Boston. RBS got its stake after last year's debt-for-equity swap when MyTravel's creditors were given control of the tour operator in return for cancelling some of their loans to the company.

Domestic & General rose 15p to 977.5p on rumours that an 1,100p-a-share offer for the domestic appliance insurer is just around the corner. According to gossips, Homeserve, up 0.5p to 893p, is the most likely predator. The company provides home emergency services and was spun out from South Staffordshire Water. But analysts poured cold water on suggestions that a deal between the two is imminent because of heavy share-buying by Homeserve directors last week. Company directors are barred from buying shares before a major corporate event.

Domestic & General shares stand at an all-time high. Dealers believe the takeover rumours surrounding the company have been prompted by the emergence of Man Financial as a 5.1 per cent shareholder. Man is believed to hold the stake on behalf of a client.

IFX put on 4p to 108.5p after the spreading-to-foreign exchange broker assured investors it was on course to deliver a pre-tax profit of £1.7m for the year. Matrix Communications added 9.5p to 182p on whispers that the IT services group is in talks aimed at a tie-up with the privately owned Azzurri Communications. Should the two merge, the deal is likely to be structured as a takeover of Matrix by Azzurri given the latter's greater size.

Asia Energy jumped 27.5p to 785p on news that the Government of Bangladesh had given its Phulbari Coal project the green light. The country's Department of the Environment endorsed Asia Energy's plans for an open-cast coal mine at Phulbari, which is in the north-west of Bangladesh. This takes the company one step closer to getting formal state approval for the scheme.

Michael Jivkov