Market Report: Corus galvanised by rumours of Russian bid

Click to follow

The market seems convinced there will be a bid for Corus sooner rather than later. Since the Mittal Steel merger with Arcelor, Corus has become the only realistic European consolidation play, and the rumour in the market yesterday was that the Russian group Severstal will launch a rights issue to pay for Corus.

Although a Severstal spokesperson denied the story, traders remain confident that, if Severstal does not bid, Germany's ThyssenKrupp will. Corus, 6.25p firmer at 403.5p, reports interim results on Wednesday and, barring any disasters, should report a robust set of numbers as steel prices have risen and demand, especially from the Far East, has remained buoyant. The big worry for investors is energy costs, but traders said Corus's high cost-base is well known and already factored in to the share price.

Following swiftly on the heels of Corus came rumours that a bid for Barclays, up 5.5p to 649.5p or Lloyds TSB, 3p better at 526p, will come to light over the bank holiday weekend. After countless such rumours, the broker Dresdner Kleinwort was perhaps more realistic in its view of Lloyds as it asked: "What is Lloyds good at?" The answer, according to the broker, is not a lot apart from cost cutting. It cut its target price to 490p for the shares. Barclays looks a better bet for most traders, although its £42bn market capitalisation would give it at least a £50bn take-out price - rich in anyone's book.

Associated British Foods continued to decline, partly due to profit-taking but also due to a rumour that the company is set to become embroiled in a sugar price-fixing investigation. However, most traders brushed off the inquiry rumours and put yesterday's 7.5p fall to 830.5p down to another bout of profit-taking after the company's excellent run over the past three months.

Despite an early sell-off on Wall Street, the FTSE 100 closed 9.5 better at 5878.6, pulling back some of Thursday's losses. Mining stocks, hit hard over the previous two sessions, hit back as broker upgrades to Kazakhmys, from UBS, and Antofagasta, from Cazenove, improved sentiment. Antofagasta, reporting on Tuesday, closed 3p better at 433p while Kazakhmys added 17p to 1,221p.

Rexam, the world's largest manufacturer of aluminium cans, gave back some of the gains it made on Thursday on the back of an excellent set of interim results, falling 11p to close at 538.25p. Goldman Sachs and Credit Suisse upped their targets on the shares, with Credit Suisse targeting a bullish 615p. However, Citigroup cut its recommendation to "hold" on valuation grounds.

The plant-hire operator Ashtead is set to release second-quarter numbers on 5 September, and with the current rights issue due to close on Tuesday, analysts will look for the shares to move higher before the results. Traders said concerns over the US housing industry had been overdone and that the company should report a 14 per cent rise in earnings. The shares closed 4.5p firmer at 127p.

Things look to be going from bad to worse at Interserve, the support services group that recently suspended six senior managers amid accounting irregularities. Interim results will be postponed because the company has still not managed to verify the adjustments it will need to make to previous results. The shares tanked again, closing 13.75p lower at 260p, a new low for the year and nearly 38 per cent below the high for the year.

BBA was in demand before next week's half-year results, and some traders are convinced the group is still considering selling its fabrics division, Fiberweb, rather than listing it separately. BBA nudged 1.75p better to 275.75p.

In the small caps, the oil exploration and production tiddler Gold Oil surged almost 50 per cent in early deals on the back of retail buying. The company was rumoured to be on the verge of a positive drilling update, but one market maker said: "It is going to take a hell of a good announcement to push the shares much higher from here." He was right; the company later declared it knew of no reason for the share price rise. The shares closed 3.38p better at 13.75p.

Despite Thursday's profits warning, its second since May, market makers reported strong support for the computer distribution group Fayrewood, 0.25p firmer at 78.25p. According to house broker KBC Peel Hunt, the stock trades on only 5.9 times revised 2006 full-year forecasts, a substantial and unwarranted discount to the sector. The feeling among traders is that unless the market begins to rerate the stock, it could put itself or some of its non-core assets up for sale.

Comments