Market Report: Broker backing sparks gains in electrical firms

It is not often that a broker sets out to attempt to persuade two companies to merge - at least not publicly anyway. It is normally done behind closed doors. Which is what made yesterday's note on Premier Farnell and Electrocomponents by Citigroup so unusual.

Rather than hinting that a merger would be a good idea, Citigroup said a tie-up between the two distributors of electrical devices makes "compelling logic" that could "potentially produce huge cost and capital savings". The broker believes a merger could be worth 70p of upside to both stocks. On an individual basis, Citigroup upgraded Electrocomponents to "buy" from "sell" and retained a "hold" on Premier.

One trader said: "If that isn't a pitch for putting the deal together, I don't know what is." The stocks were among the best performers in the FTSE 250, Electrocomponents up 12.5p to 290.5p and Premier Farnell 9p better at 195.25p.

Among blue chips, banking stocks were in demand following a strong trading statement from Royal Bank of Scotland, 76p better at 1,916p. Other financials were also in focus, with Man Group 11.75p better at 491.75p after good numbers from its flagship AHL Fund, and Icap following on from Tuesday's good support by adding 4p to 466p.

News that NTL has backed out of a bid for ITV came as little surprise to traders. The market has in effect discounted the bid since BSkyB bought a 17.9 per cent stake in the commercial broadcaster. ITV shares shed 2.25p to close at 110p, despite Dresdner reiterating its "buy" advice with a 130p price target, while BSkyB added half a penny to 522.5p.

London shares were broadly flat on pre-Budget day, with little in Gordon Brown's speech to drive the market in either direction. The FTSE 100 index closed just 3.9 better at 6090.3.

Whitbread will move back into the blue-chip index at the expense of British Energy after the quarterly reshuffle. Whitbread, up 4p to 1,585p, is seen as one of the hottest buyout prospects in the market, so its stay at the top table might be short. British Energy's demotion was expected, and yesterday's 0.5p gain to 475.5p was too little too late.

Elsewhere in the reshuffle, Wolfson Microelectronics' shocking second half of the year was completed as the company was relegated out of the FTSE 250, despite closing a penny better at 276.5p. Wolfson will be joined in the small caps by Kensington Group, up 22p at 779p, Whatman, down 4p at 249.75p, Photo-Me International, half a penny worse at 92.75p and Computacenter, a penny better at 242p. Market newcomers Ashmore Group, up 5.5p to 237p, Hochschild Mining, 8.5p better at 372.5p and UK Commercial Property Trust, 0.25p firmer at 105.25p will go into the FTSE 250, along with UK Coal, up 2.5p at 427.5p and Daejan Holdings, 297.5p stronger at 5,225p.

Talk of corporate activity at SCi Entertainment, the computer game developer, continues, with Time Warner seen as a likely source. However, rather than a full-scale takeover bid, Warner is said to negotiating to buy a strategic stake. Shares in SCi nudged 4p firmer to 506p.

Bridgewell Securities encouraged buyers of Michael Page, the recruitment group, by raising its price target for the shares to 500p from 450p. Buoyant financial markets have boosted the sector in recent months, and Michael Page closed at 429.5p, up 12.5p, just short of a new all-time high.

Halfords, the motoring and cycling retail group, was in the red as the investment bank UBS placed the last of CVC's stake in the company. CVC had a 7 per cent stake remaining, the equivalent of 16.1 million shares. The placing was at 351.5p, sending the stock 10.5p worse to 348.25p.

Among small caps, it looks like the end of the road for the Monday lottery as its parent group, Chariot, revealed that takeover talks have ended. Its shares fell 0.23p to 0.52p. ACM Shipping made a positive start to life as a quoted company, closing 9.5p better than the 162p placing price at 171.5p. The placing was at least 2.5 times oversubscribed and institutions were busy topping up holdings on the first day of trade.

The rise of Renesola, the Chinese solar wafer maker, looks set to continue after Merrill lynch initiated coverage of its shares with a "buy" rating and a bullish 800p price target. Its shares added 69p to 463p.

Finally, Redline Communications, a Canadian wireless broadband-solutions group, listed on AIM after raising £13m through a placing by Cannacord Adams at 100p. Its shares closed the session at 108.5p.