Market Report: Fresh bid rumours help C&W ring up gains

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The Independent Online

A combination of bid speculation and bullish comments from Investec Securities left Cable & Wireless as one of the best performers in the FTSE 100 index yesterday.

Talk of a bid for C&W, up 5.5p to 126.75p, is nothing new, with France Telecom usually cited as the most likely buyer of the company. And so it was once again.

Christian Maher, Investec's telecoms analyst, also stirred up interest in the stock. He suggested that after a very slow start, things are finally coming together at Bulldog, C&W's broadband business. It is certainly about time. By 2007 the group will have invested about £250m into the division.

Mr Maher bases his view of a turnaround at Bulldog on evidence that local loop unbundling (LLU) appears to be picking up in the UK. LLU is the mechanism by which Bulldog is rolling out its broadband services throughout the country. It basically sees the business put in a piece of its technology in a BT exchange which connects clients to the internet. According to recent data from Ofcom, the telecoms regulator, the number of LLU lines rose to 151,000 in December from 151,000 in November and 113,000 in October.

Mr Maher said: "Being a major investor in LLU to date, Bulldog must be a chief beneficiary from this trend." He calculates that if C&W's broadband division really starts to take-off it will add significantly to the stock's valuation.

The insurers were also a major talking point as consolidation rumours swept through the sector. Royal & SunAlliance, up 0.5p to 128.5p, and Prudential, 12.5p higher to 572p, were talked of as being the most vulnerable to takeover. Meanwhile, Legal & General rose 2.75p to 126.5p, Aviva added 18p to 726p, while Old Mutual rose 3.5p to 169.5p.

SABMiller gained 32p to an all-time high of 1,116p after Credit Suisse First Boston urged investors to buy into companies with high exposure to consumers in emerging markets. The Swiss broker believes that consumption in this arena could grow up to 10 per cent over the coming year, and highlighted the brewer's presence in South America, Eastern Europe, South Africa and China.

The wider FTSE 100 closed above 5,700 for the first time in four and a half years. The index rose 33.1 points to 5,714.6. The retail sector was buoyed by a better-than-expected trading statement from Next, 157p higher at 1,680p. Alexon rose 16.5p to 233.25p, Ted Baker added 24p to 539p, French Connection fashioned a 4p gain to 269p, and Woolworths added 1.75p to 39p. Marks & Spencer gained 2.5p to 499.5p after Deutsche Bank sold 32 million shares at 500p on behalf of Brandes Investment Partners. Even after the disposal, the US fund manager remains by far the recovering retailer's biggest shareholder with a13.3 per cent stake.

A downgrade from Goldman Sachs meant that HBOS missed out on the solid gains registered by the wider market. Shares in the bank dropped 16.5p to 975.5p as the heavyweight broker cut back its stance on the stock to "in line" from "outperform" largely on valuation. HBOS has soared 15 per cent since last month's trading statement.

BOC fell 23p to 1,168p on news BASF had tabled a $4.9bn (£2.8bn) bid for the US-based Engelhard Corporation. Many in the City have long hoped that the German chemicals giant would eventually buy BOC, however most analysts seeBASF's bid as pretty much ruling out such a possibility.

Meanwhile, Gallaher lost 12.5p to 871.5p as ABN Amro was heard to have placed 6.7 million shares in the market on behalf of an institutional client.

In the FTSE 250, Rank lost 10.5p to 283p as brokers warned that the leisure group may have to slash its dividend after the disposal of its Deluxe media division last year. Some suggested Rank could be forced into reducing its payout to investors by about 60 per cent.

Intertek dropped 18p to 681p as the quality-control group lost a contract with the Nigerian government, which prompted Dresdner Kleinwort Wasserstein to cut back its price target on the stock to 735p from 750p.

Icap, 10p worse off at 401.5p, was undermined by Credit Suisse First Boston, which downgraded the money broker to "neutral" from "outperform". CSFB said it is worried about rising costs at Icap.

Among small companies, RWS rose 9.5p to 289.5p on talk of buoyant trading at the support-services group. Appian Technology, which supplies automatic number-plate recognition systems and other traffic guidance products, soared on its first day of dealings on AIM, the junior market. Having raised £2m at 5p a share through the broker JM Finn, the company saw its stock close at 7.62p. Among Appian Technology's clients are police forces, local authorities other government bodies.

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