Market Report: InterContinental buoyed by £5bn bid talk

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InterContinental Hotels has been among the top picks for a bid since before Christmas when the word around the market was that Starwood Capital was mulling an offer for the group. Yesterday's $3.8bn (£1.95bn) acquisition of Four Seasons Hotels, by a consortium including Bill Gates, reinforced the view that hotel assets are in demand from big investors and InterContinental could be the next to face a bid.

Despite a poor wider market, shares in InterContinental nudged 3p better to 1,288p, one of only a handful of blue chips to end the session in positive territory. The Barclay brothers recently took a 5 per cent stake in the group that operates the Crowne Plaza and Holiday Inn brands. Traders are still convinced the brothers, who also own the Ritz hotel in London, will join other investors in making a bid for InterContinental that should value it at a minimum of £5bn, the equivalent of 1,424p per share.

The mining group Antofagasta and Rio Tinto were in focus as the broker Cannacord Adams reiterated its "buy" stance on the copper producer Antofagasta and "hold" on Rio Tinto. However, the wave that many mining investors have been riding for the past couple of years appears to have peaked and the Canadian broker cut its price target for Antofagasta from 700p to 550p. Antofagasta fell 3p to 462p with Rio Tinto 11p worse at 2,686p.

Rolls-Royce bucked the market trend by climbing another 14.25p to 516.5p, as the broker Merrill Lynch became the latest investment bank to wax lyrical on the group's prospects. Merrill promoted Rolls into its top European-picks list and upped its target price for the shares to 620p. The broker believes the company's secure earnings stream and lack of exposure to the new equipment market should mean the shares trade at a premium to the aerospace and defence sector.

The Swiss broker Credit Suisse upped its target price for the pharmaceutical giant GlaxoSmithKline, but the investment bank still believes the shares are overvalued. Credit Suisse believes the growing number of generic competitors to Glaxo's stable of drugs will have a bigger impact on current-year earnings than the market is pricing in, although it upped its target for the shares to 1,365p from 1,320p. Even so, there were enough buyers buoyed by last week's results to send the stock 10p firmer to 1,460p.

London shares were weaker on investor concerns over geopolitical tensions, and following last week's excellent trading investors decided to take some profits. The FTSE 100 closed 29.3 lower at 6,353.5.

The banknote printer De La Rue fell 6.5p to 693p despite UBS, the Swiss investment bank, upping its target to 730p from 655p. The company confirmed on Friday that current trading is ahead of market forecasts and UBS expects the prospect of a special dividend later in the year to underpin the share price.

The estate agent Countrywide firmed 8.5p to580.5p on reports that Apollo Management, the US venture capital group, is mulling an offer for the company worth in excess of £1bn. However, traders booked some profits in Rightmove, the online estate agent in which Countrywide has a 21.5 per cent stake, as there is no guarantee that a bid for Countrywide will include a premium for its Rightmove stake. Rightmove fell 10.75p to 516.25p.

British Energy was in focus again ahead of today's third-quarter numbers, with traders speculating the Government may be poised to sell some or all of its stake in the company. There was also talk that the struggling group could join a consortium of European nuclear energy companies to develop new nuclear plants across the continent. Collins Stewart cautioned that a sale of the Government stake could knock the stock to below 400p, but said that the shares remain "fundamentally cheap". Having been 18.25p better at 437p by mid-afternoon, British Energy closed just 5.25p firmer at 424p.

In the small-caps, CCH International, the Sharia-compliant lender, continued to defy gravity, soaring another 30p to 90.5p. Last June, it could have been picked up for 5p per share, giving anyone lucky enough to have done so a 1,700 per cent gain. Despite the spectacular run, the stock has been on market makers' reported good two-way business with investors still keen to take positions.

Biofuels headed in the opposite direction following bearish comments from the broker Numis Securities last week, giving the stock a 10p target price. Market makers believe some takeover talk is in the air but that a decent premium to the current price is a long shot. The shares fell 4p to 29.5p.

Finally, Axeon Holdings found more buying support on the back of a bullish trading statement last week. The shares, which have almost doubled since last Thursday, rose11.5p to 72.5p.

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