Market Report: Millennium rings in new year with buyout talk

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The Independent Online

The London market looks like starting 2007 in exactly the same way it ended 2006 - with a flurry of takeover speculation. The word among mid-cap traders is that the management at the hotel group Millennium & Copthorne is preparing a bid to take the company private with the backing of a venture-capital group.

Hotel assets enjoyed a strong 2006 and, with money continuing to flow into private equity funds, there will be more deals this year. Shares in M&C rose 2.5p to613p and there is speculation a bid will value the shares at up to 800p each. The company's balance sheet has very little gearing and management is thought to be frustrated with the rating at which the stock trades. If management does not gear up the balance sheet, the talk is that someone else will.

The high-street retailer Marks & Spencer, up 13.5p to 730.5p, was high on the blue-chip leader-board as analysts remained confident that the group was one of the big winners in Christmas trade.

The broker Numis Securities picked its top Christmas retailers, also including the catalogue firmN Brown, 2.25p better at 284.25p and the consumer credit rating agency Experian, down 1.5p at 598p. However, in line with pre-Christmas warnings, the broker believes trading has been very tough in the entertainment retailing market, and expects more downgrades from HMV Group, 1p worse at 142.25p, and Woolworths, 0.75p better at 35p.

Panmure Gordon published its list of stocks to watch in 2007 with 10 "buys" and four "sells". The broker sees most downside in Alliance Boots, 8.5p firmer at 846p, accusing investors of "blithely assuming" that merger synergies will flow through to the bottom line, and believes there is potential for a 25 per cent fall in the value of the group.

Panmure sees most upside in the hedge fund group Absolute Capital Management, off 1.5p to 306.5p, giving the shares a target of 500p, 63 per cent up from the current price. It told clients the company trades at a 40 per cent discount to its peers "despite offering better performance, higher profitability and stronger growth prospects".

London shares got off to a very encouraging start to 2007 as the FTSE 100 index closed 90.1 higher at 6,310.9, another multi-year high. Only five FTSE 100 stocks ended the session in the red as investors were encouraged by a weaker oil price. Crude fell below $61 per barrel on forecasts of a mild winter in the United States and a relatively muted reaction in the Middle East to the execution of Saddam Hussein last week.

Some traders are betting that Collins Stewart, the broking group, could be the first big name to attract a takeover bid this year. The shares have risen strongly over the past few sessions, and added another 5p yesterday to close at 259p. After making a dull debut on the market in mid-December, following the demerger of the inter-dealer broking arm Tullett Prebon, the shares have now risen more than 18 per cent in the past four sessions.

Although Cape confirmed it is no longer in talks to acquire the industrial services division of Interserve, shares in the building and maintenance group rose another 19.25p to 420.75p as traders speculated Cape will make another approach sooner rather than later. A bullish note from Panmure Gordon also helped, as the broker reiterated its "buy" recommendation and upped its target price to 450p.

Big Yellow Group, the self-storage warehouse operator, succumbed to a bout of profit-taking after breaking through 700p for the first time on New Year's Eve, falling 22p to 683p. A handful of takeover rumours circulated late last year, making it one of the best mid-cap performers of 2006 with a rise of more than 130 per cent.

Small-cap traders are banking on strong results from Land of Leather, the furniture retailer, on speculation Christmas trading was well ahead of internal forecasts. The shares more than doubled last year and got off to a good start in 2007, firming 16p to 341.75p.

The Aim-listed River Diamonds surged nearly 30 per cent as its finance director, Kiran Cadlas Morzaria, bought 250,000 shares at 0.9p each, taking his holding to 1.65 million shares. AMC, a company associated with chief executive Anthony Balme, also bought 1 million shares at the same price. The shares rose 0.22p to 0.97p.

Despite reporting strong sales growth, Blavod Extreme Spirits, a maker of unusual liquor brands including black vodka, has suffered from declining margins thanks to promotional costs. Although turnover in the first half was up 61 per cent to £3.5m, losses were flat at £1.7m and the shares fell 2p to 11p, a new all-time low.