Market Report: Centrica bid hopes send share price soaring
Thursday 25 August 2005
Although investors warmed to the story early inthe day - helping Centrica shares touch a high of 263p - their ardour waned as many analysts poured cold water on the speculation. Among them was ING Financial, which said it does not believe a bid is imminent.
But the broker did admit that some form of corporate action is likely at the company in the longer term and suggested a tie-up with Gaz de France makes good sense. ING said: "Gaz de France has more similarities with Centrica's business model and a desire for international expansion."
After the sale of its roadside recovery business, the AA, Centrica has been increasingly viewed as ripe for consolidation. In fact, this year it was reported that Sir Roy Gardner, its chief executive, had held merger talks with Norsk but had been rebuffed. Back then, political concerns were said to have affected the decision of Norsk, which is 44 per cent owned by the Norwegian government.
One can see why Centrica's management might be keen to do a deal. The company's major weakness is its lack of upstream gas assets. As a result it is being hit by the high price of the commodity. But a combination with an upstream player with plenty of gas in the ground would protect Centrica from this.
Meanwhile, theFTSE 100 was in retreat, falling 25 to 5,275.2. Tom Hougaard, the chief strategist at the financial spread betting firm, City Index, is cautious about the near-term outlook for stocks. He said: "We are getting close to a crucial support in the market and if the bulls don't show up at this point in time, indices are likely to head sharply lower."
Dixons lost 7p to 152p as the stock went ex-dividend. Its cause was not helped by Credit Suisse First Boston, which urged investors to switch to Dixons' rival, Kesa Electricals, off 0.75p at 258.25p. The Swiss broker noted that recent newsflow from peers has been poor and warned that if the current UK consumer weakness continues, earnings forecasts for the second half of Dixons' year could prove to be vulnerable.
The retailer is due to issue a trading statement at the start of next month and CSFB is not expecting anything very positive to come from it. Not only is Dixons up against a general downturn on the high street but its Currys chain is having to contend with sharp falls in the prices of personal computers. CSFB expects shares in the group to underperform for the time being.
Sage fell 3.25p to 230.75p on concerns that the group's accountancy software is likely to face growing competition from Microsoft. On Tuesday, the US software giant unveiled its latest small business accountancy product to investors. It is due to be launched next month and will compete with Sage's Peachtree package. Given the recent strong performance by Sage stock and this new competitive threat, Merrill Lynch argued that there is little further upside to UK group's shares.
Bodycote rose 5p to 211p after Deutsche Bank upgraded the stock to "buy" from "hold" in response to Tuesday's strong interim results from the engineer. Deutsche said: "Bodycote is enjoying robust demand from aerospace and oil customers while the group's first-half profits came in 5 per cent ahead of our expectations."
Bid rumours again circled Laird Group, up 7p to 343p. More than 4.2 million shares changed hands, four times the volume on an average day, as traders piled into the engineer in the hope of making a quick buck should an offer emerge. Talk of an offer for Laird has circled City dealing rooms since the start of last week.
Peter Hambro Mining rose 8.5p to 713.5p on hopes that it may soon be in a position to upgrade the size of its Pioneer project in Russia. SHL Group added 2.5p to 142p as the company was heard to be enjoying sales growth in Europe, while ICM Computing held steady at 347.5p despite gossip that its management is about to secure an important contract win.
Finally, Shield Capital added 0.37p to 8.12p on talk that the cash shell is close to completing a major acquisition. Shield is said to be in the final stages of negotiations aimed at the reverse takeover of a company operating in the clean fuels sector.
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