Market Report: Lonmin falls to earth as bid talks collapse

Analysts don't always get their timing right, as one found out this week after publishing a "sell" note on The Body Shop minutes before L'Oréal confirmed it was mulling a bid for the ethical beauty products retailer.

But Charles Kernot, at Seymour Pierce, can give himself a pat on the back. The mining analyst put his neck on the line on Monday by recommending that Lonmin shareholders "take the money and run" after the group confirmed it was in bid talks. His advice paid off as the platinum miner's brief flirtation with the mystery suitor came to an abrupt end yesterday.

Lonmin stock was already looking expensive after a year of stellar performance and takeover chatter, and the confirmation of offer talks sent Lonmin rocketing 30 per cent to a high of 2,671p. Too high, said Mr Kernot, as he correctly predicted that no one else would be interested in the group at that price. Its shares duly tanked yesterday, falling 197p to 2,300p, the worst performer in the FTSE 350.

Not surprisingly, other mining stocks followed Lonmin lower, with Rio Tinto down 42p at 2,780p, BHP Billiton giving up 9p to 980p and the fellow platinum specialist Anglo American off 34p to 2,159p. Xstrata, due to report full-year figures on Wednesday, was also unable to buck the trend, andclosed 10p lower at 1,716p.

Unusually, the wider market was able to shrug off the impact of weak mining stocks, which represent 6.8 per cent of the index, and the FTSE 100 gauge of leading shares closed 24.5 points higher at 5,860.5, taking back a sizeable slug of Thursday's 36-point fall to secure a 14-point rise on the week.

The final day in a busy week of corporate reporting saw pleasing results from a handful of major stocks. Lloyds TSB reported numbers at the top end of expectations, sending its shares up 25.5p to 566.5p and dragging the rest of the banking sector with it. Royal Bank of Scotland, due to report next week, surged 22p to 1,860p and HSBC gained 15p to 980p. Volume in HSBC, set to report the week after next, has been very strong over the past couple of trading sessions, and 48.3 million more shares changed hands yesterday. With a market capitalisation of £109bn, no one was suggesting that the Anglo-Hong Kong bank was about to become a takeover target.

Hilton Group had its first day of trading under the Ladbrokes name, but its shares got off to a disappointing start, falling 6.5p to 370p. The company announced results at the low end of expectations and said it is considering dropping its ban on US customers using its online gambling facilities. Some analysts think Ladbrokes will continue to lose ground to competing online bookmakers if it does not take a risk and start accepting US gamblers.

Talk that J Sainsbury is to launch a £2bn bond issue, part of which will be used to reduce its pensions deficit, pushed shares in the supermarket heavyweight 6.5p higher at 326p. The news sent shares in its rival Tesco even higher, up 10p to 335.5p, just short of an all-time high. Dealers said Tesco may be considering a similar move, which might include a sale and leaseback of some of its property, 85 per cent of which is freehold.

HMV Group has already turned down an approach by Permira, the private-equity firm, but rumours were doing the rounds yesterday that another private-equity bidder, possibly Apax Partners, is poised to launch a fresh offer for the music and DVD retailer. Permira may not be out of the race either, with sources indicating that the firm may be prepared to raise its bid from the 190p rejected on 7 February. HMV shares rallied 7.75p to 192.75p.

The star performer in the mid market was iSoft Group, up 17p to 190.25p, on the back of director buying and vague bid talk. Its shares fell 43 per cent in late January as the company warned that delays in the implementation of NHS information technology upgrade would severely impact this year's results.

One trader said: "There might be some interested parties but it looks more like a dead-cat bounce to me. It was a very grim warning and I felt that the dramatic fall was more than justified."

Among small caps a post-results institutional roadshow by AT Communications, the integrated business telecoms provider, was well received. Its stock nudged 3p higher to 49p, a rise of 6.5 per cent.

Small-cap traders were watching tiny Scotty Group, up 0.37p to 1.77p, as rumours that the company is about to sign a significant helicopter contract did the rounds. The company has a market capitalisation of £11m, and the contract is thought to be worth €48bn (£32.5bn). Traders said the company's small market capitalisation is the result of a hangover from the dot.com bubble, when the company was known as Motion Media.