Market Report: Corus gets a lift on back of steel expansion bid

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The Independent Online

Long-suffering shareholders of Corus, the Anglo-Dutch steel maker, have had little to cheer about recently. The company has been on the brink of bankruptcy on more than one occasion and the shares have been languishing at less than 60p for most of the past five years.

Some hope arrived yesterday in the form of the Indian steel company Mittal's €18.6bn (£12.7bn) bid for the French rival Arcelor, a deal that if completed will create a company worth more than €40bn. Corus shareholders can be forgiven for wishing it was Corus that Mittal had bid for but at least the news gave shares in Corus a boost, climbing 14.75 per cent to close at 72p, making it the biggest riser in the FTSE 250.

The broker Cazenove told clients the Mittal announcement would have several areas of impact for Corus, but warned that Corus's being left out of another round of sector consolidation could mean the company is not seen as a possible takeover target. Cazenove said its sum-of-the-parts valuation for Corus would lend the stock some support "but imply an increasing reliance on improving pricing environment, mergers and acquisitions or acceleration of organic growth". The broker also said it sees an emerging-markets steel maker seeking a London listing as being the most likely source of a bid for Corus.

Corus may have real cause to celebrate soon - traders are betting it will return to the FTSE 100 at the next index-constituents meeting, replacing Tate & Lyle. Tate was the worst performer in the FTSE 100 yesterday, falling 15.5p to 573.5p, as the investment bank Merrill Lynch advised clients to sell the stock. Merrill warned price rises for 2006 are likely to be far below the company's forecasts, and slashed its earnings forecasts for earnings at Tate for three years.

Should Corus replace Tate in the main index, traders expect tracker funds to start dumping Tate as they switch into Corus. Corus has a market capitalisation of £3.1bn after yesterday's rise; Tate has a capitalisation of £2.7bn.

P&O surged another 25p to 547p to end the day as the biggest riser in the FTSE 100, as traders hoped for a bidding war between its Singapore and Dubai-based suitors. News also emerged that the influential hedge fund Eton Park also increased its stake in the P&O, buying another 4.9 million shares on Wednesday at 510p through contracts for difference. It now holds 34.5 million shares.

Northern Rock continued its strong run after a bullish set of numbers was released on Wednesday. Credit Suisse became the latest broker to upgrade its stance on the Newcastle-based mortgage bank, saying: "Given the strength of the investment case, it is time to reappraise our stance". It acknowledged that Northern Rock had successfully addressed a number of areas of concern. Northern Rock closed at 1,034p, a rise of 19.5p.

Rio Tinto reports its results next week and bulls of the commodity stocks will be watching the situation carefully. Once again, mining stocks were among the major gainers, with Xstrata up 34p to 1,635p and Anglo American up 66p to 2,187p.

The accounting software company Sage continued its strong run, which has seen its shares climb 36 per cent in the past 12 months. Analysts at Shore Capital reiterated their "buy" recommendation on the stock saying: "The spectre of Microsoft has been a perennial bear point on Sage, and has been perennially overdone." The shares rallied 10p to close at 274p.

After yet another strong run, stocks in the housebuilding sector came in for a bout of profit-taking. George Wimpey, often seen as the most likely target in a sector still due for consolidation, was the main faller declining 9.25p to close at 518.5p.

The former technology darling IQE, an intellectual property rights company involved in the development of silicon chip design, rose strongly to 11.37p, up 10 per cent on the back of a bullish trading statement and a contract win. The five-year contract, with an unnamed US manufacturer, is worth $2m (£1.1m) a year to the group. It also said revenues for 2005 are likely to be about 55 per cent higher than in 2004.

Small-cap traders were watching the AIM-listed Alternative Networks, unchanged at 106p, after a sizeable stock overhang was cleared. The seller, thought to be the insurance company Canada Life, has put pressure on the stock in the past few weeks which saw the business-to-business telecoms group fall from a high of 128p down to just about its float price of 100p.

Netcall, the AIM-listed telephone technology company, was traded heavily as the broker Charles Stanley was thought to be buying a large line of stock in anticipation of good results, due on 6 February. The shares climbed 2p to close at 19p, a rise of 11.8 per cent.