Market Report: Durlacher rises on talk of a predator in the wings

If you believe yesterday's stock market gossip, Durlacher, the stock broker, is being stalked by a predator and could soon find itself on the receiving end of a takeover approach.

If you believe yesterday's stock market gossip, Durlacher, the stock broker, is being stalked by a predator and could soon find itself on the receiving end of a takeover approach. The excitement sent its shares roaring 8.5p higher to 101p as traders piled into the stock in the hope of making a quick turn.

Consolidation among smaller corporate brokers looks to be a likely prospect in 2005. Analysts believe that the likes of Durlacher and Shore Capital lack the critical mass to make serious amounts to money and suggest Durlacher is among the most vulnerable to takeover. Even after yesterday's share-price jump, the group is valued at just £20m and does not have a large blocking stake on its shareholder register in the way that Shore Capital has.

So who would be interested in acquiring Durlacher? Some suggested the major Icelandic banks operating in the UK as potential buyers. Both Landsbanki and Kaupthing Bunadarbanki are known to be on the hunt for UK financial assets and are believed to have approached a number of stock brokers, including Numis Securities and the privately owned Seymour Pierce, with a view to buying them.

Others suggested that a tie-up between Durlacher and WH Ireland, down 11p to 131.5p, would make sense. WH Ireland is now valued at pretty much the same level as Durlacher and would benefit greatly from the sizeable tax losses the group has on its balance sheet along with the cost savings a tie-up would generate. The tax losses at Durlacher are a legacy of its dot.com investments. At the height of the boom, the group was valued at more than £2bn and stood on the cusp of entry to the FTSE 100. But the bust that followed hit the stock broker hard. Since then it has sold off all its dot.com investments, along with its private client stock broking business, and has focused on servicing corporate clients.

In the FTSE 100, Legal & General gave up 3.5p to 114p after Morgan Stanley cut its rating on the life insurer to "underweight" from "equal weight". In a cautious note on the industry, the US broker argued there is little upside to L&G stock from current levels. Elsewhere in the sector, Aviva fell 12p to 630.5p, Prudential retreated 6.5p to 462.5p and Friends Provident gave up 4p to 160.5p.

Fears that today's update from Man Group could contain bad news sent shares in the hedge funds giant tumbling 48p to 1,372p. For the first time Man will issue a statement to the market outlining its total fund under management. Bear Stearns believes investors have nothing to fear from the update. In fact, it forecasts that Man will boast of significant gains in funds under management over the $39bn it announced in September.

UBS became the latest in a series of heavyweight brokers to upgrade their rating on Reuters, up 6.75p to 387p, ahead of tomorrow's trading statement from the group. The Swiss broker raised its stance on the information provider to "buy" from "neutral" and set a 450p price target.

Rank improved 1p to 274.5p on talk that the disposal of its Deluxe film distribution unit may not be far away. On Monday, ABN turned positive on Rank, convinced that the company will soon announce plans to hive-off the under performing business. SSL International lost 1.75p to 320.75p after Goldman Sachs announced that it had sold down its stake in the condom maker. Bulls of the stock are still convinced that the company will soon be bought.

Dealers reported heavy trading in Aggregate Industries, up 4p to 114p, amid rumours of a bid for the group. Takeover speculation also surrounded Woolworths, 1p better at 38p. According to market gossip, a private equity house is running the slide rule over the retailer, which saw its shares slide last week on the back of a disappointing Christmas trading update.

Lower down the pecking order, First Technology added 7.5p to 407p on talk that last year's £100m acquisition of BW Technologies is performing well ahead of expectations.

Polaron rose 8p to 167.5p thanks to Evolution Securities which initiated coverage on the nanotechnology specialist with a "buy" recommendation and a price target of 228p. The broker is believed to be impressed with Polaron's commercial deal-making track record and its lead product, a revolutionary microscope called 3DAP.

PayPoint added 2.5p to 262.5p on whispers that a positive broker note about the company will soon be published. Pursuit Dynamics improved 2.5p top 212.5p as some talked of a positive trading statement from the technology developer. Gossips reckon Pursuit's newly appointed broker, Investec Securities, will take the company on a roadshow of City institutions later this week.