Market Report: HSBC pours cold water on BG Group bid talk

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The Independent Online

There is already a sizeable bid premium priced into BG Group shares and this is likely to deter oil sector majors from launching a takeover of the company. That was the conclusion of a research report by HSBC Securities yesterday and it left BG down 7.5p to 552p.

According to the broker's calculations, the oil explorer's shares carry a 15 per cent bid premium and it believes this is excessive. As a result HSBC slapped an "underweight" rating on BG and set a 481p price target.

The stock is at the centre of one of the oldest takeover stories in the Square Mile. Ever since the company was created - after the demerger of Lattice in October 2000 - it has been touted as vulnerable to a predator. It is often said that when stockbrokers are confronted by a quiet spell in the market they try to re-ignite the BG bid story in the hope of generating commission for themselves.

HSBC argued that the group's assets in the Atlantic Basin may not appeal to some European oil majors. Elsewhere in the sector, BP fell 4p to 630p while Royal Dutch Shell lost 6p to 1,873p. HSBC was also behind PartyGaming's 5p rise to 133p as the broker increased its fair-value target on the stock to 134p and raised its earnings forecasts for the online casino.

The FTSE 100 rose 13.9 points to 5,521.1 after Wall Street registered gains in early trading. On Tuesday, the US Federal Reserve raised its short-term interest rate by a further quarter percentage point to 4.25 per cent and Tom Hougaard, the chief strategist at City Index, the financial spread-betting firm, said the odds of another rate rise in January are 95 per cent. Meanwhile, the FTSE 250 fell 23.6 points to 8,493.3.

British Land added 24.5p to 1,003p amid speculation that the Abu Dhabi royal family is keen to acquire the property group's portfolio in the Square Mile. The deal could be worth up to £800m and will most probably include Plantation Place, 51 Eastcheap and 43/45 Eastcheap.

Smiths Group was the best blue-chip performer, gaining 36p to 1,008.5p, on the back of bullish comments from Numis Securities. Clive Forestier-Walker, an analyst at the broker, said: "All [Smiths'] divisions are performing strongly, with aerospace likely to be second-half weighted due to delivery timing." He said he expects Smiths to achieve earnings growth of 17.5 per cent over the next two years and believes this makes its shares inexpensive at current levels. As a result, Mr Forestier-Walker has raised his price target on the stock to 1,105p from 1,075p.

On Tuesday, the hotels sector was alive with rumours of a bid, while yesterday the spotlight fell squarely on De Vere, 53p higher to 728p. Gossips suggested a move on the hotels group is imminent although they were unclear who the predator might be. According to analysts, the most likely buyer of De Vere, which owns the likes of Brighton's Grand and the Greens health and fitness clubs, is a private-equity house like Permira. At the close of business the company was valued at less than £600m, making it a manageable deal for a private-equity player such as Permira.

EMI retreated 3.25p to 235.25p as Panmure Gordon advised shareholders to take profits from the stock, which has gained 15 per cent since the end of October. The driving force behind this increase has been takeover speculation but Panmure is sceptical about any possible deal. "We do not believe anything with Warner Music is imminent and we do not think that the regulator would allow a merger with Vivendi Music", the broker said. It is also worried that EMI has had its weakest Christmas schedule for several years.

HMV fell 3.5p to 178.75p while WH Smith dropped 3p to 413.75p after Ottakar's, which was 7.5p lower at 357.5p, issue a profits warning. Like Ottakar's, Smiths and HMV are heavily involved in the book-selling business these days and they too are bound to be suffering from the ultra-competitive nature of this segment of the high street.

EcoSecurities saw conditional trading of its shares start on the Alternative Investment Market. The carbon credits trader raised £54m at 150p and at a closing price of 165p the whole group is valued at about £145m. Also listing on AIM was @UK which helps small companies trade their services online with local authorities. Having raised £8m at 60p the stock closed at 65.5p. @UK saw a number of blue-chip institutions back its fund-raising including Gartmore, which has a 13 per cent stake, and Morley Fund Management with a more modest 4 per cent investment.

Finally, Gladstone ticked 2.5p higher to 20.5p after Constellation Software, a Canadian company, disclosed a 5.8 per cent stake. Constellation is known to be highly acquisitive, and has completed 30 deals since it was created in 1995.