Market Report: Cadbury bubbles on Kraft bid speculation

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The Independent Online

Investors' thirst for bid speculation sees no sign of slowing down and the broker Panmure Gordon threw some fuel on the fire yesterday with a bullish note on confectionery and soft drinks group Cadbury Schweppes.

Although the broker expects the company to deliver a solid set of full year numbers next week, it also believes that the only credible trade buyer for the company is US peer Kraft. It also notes that Kraft will have complete strategic freedom from former parent group Altria once its demerger is complete, hinting that a bid will be more likely once that happens. The broker believes Kraft would not be interested in the drinks arm of Cadbury and that if it were to bid it would more than likely sell the drinks business on to a private equity group. Panmure expects "decent" sales growth and a slight fall in earnings when the company delivers its full year results on Tuesday, but reiterated its "buy" advice and 630p target price. Cadbury Schweppes climbed 5.5p to 575.5p, with traders looking for a technical breakout at just under 600p.

The global beer market seems to be in good shape and speculation that global giants Anheuser-Busch and InBev are in merger talks boosted Scottish & Newcastle by 33p to 599p in early deals. S&N is due to report full year numbers on Tuesday next week and the word among traders is that current forecasts could prove to be too low. An afternoon bout of profit taking saw S&N shares close 13p better at 579p.

Weapons manufacturer BAE Systems found plenty of support ahead of next Thursday's full year numbers after brokers Merrill Lynch and Credit Suisse both urged clients to buy the shares. The latter sees benefits for BAE from increased US defence spending and upped its target to 500p. The shares rallied 11.25p to close at 454p.

The worst performer in the blue chips was Wolseley, 32p worse at 1,375p, as Merrill Lynch downgraded its recommendation to "neutral" on the back of Wednesday's private equity bid chat. The broker told clients that it sees little scope for short term earnings momentum and that a recovery in the US sub-prime mortgage market may still be some way off.

London shares went marginally higher after a dull start that saw the blue chip index trade 24 points lower by mid-morning. However, strong corporate results and a decent start on Wall Street tempted some buyers back into the market and the FTSE 100 ended the session 12.1 firmer at 6,433.3.

Brokers were swift to cut forecasts for music publisher EMI Group following Wednesday's warning, the company's second in the last five weeks. Credit Suisse, UBS and Panmure Gordon all cut their forecasts for EMI, with Panmure setting a price target of just 181p for the shares. Traders put most of yesterday's 8.25p rally to 219p down to short covering, although the inevitable private equity bid rumours were also doing the rounds.

UK Coal surged to the top of the mid cap leaderboard. Since Wilbur Ross sold his stake last July investors have driven the stock higher based more on its real estate assets rather than its mining prospects, and speculation on planning permission news helped the shares to close 31p better at 473.5p.

A new six-year high for London equity markets and an all-time high close on the Dow Jones encouraged investors in money managers. Aberdeen Asset Management closed 7.25p firmer at 208.75p, and F&C Asset Management, in the doldrums following a grim trading update at the end of January, managed to find some buying support to send the shares 4.75p better to 167.75p. However, Schroders, a favourite to get back into the blue chip index at the next reshuffle, failed to cash in and closed 5.5p worse at 1,151p.

In the small caps, @UK, the Aim-listed public sector procurement group, tanked after a large seller took a hefty discount to close a position. A single trade of 250,000 shares at 8p was enough to send the stock crashing to close 3.25p worse at 9.5p, although market makers said that they are not expecting any further falls from this level.

Something seems to be going on at Fortune Oil, one of the widest held smaller companies and along term favourite of retail punters. Trading volume has been high over the last couple of sessions and another 3.5 million changed hands yesterday, about three times the average daily volume. The shares picked up another 0.98p to close at 7.33p.

A heavily oversubscribed placing by Chinese petrochemicals group Haike Chemical Group on Wednesday saw the shares rally more than 60 per cent on the first day of dealings. More buyers came in for the stock yesterday, still trying to make up for being scaled back in the initial public offering, as the stock closed another 21.5p firmer at 152p.