Market Report: Northern Rock on a roll after traders' bid talk

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The Independent Online

Bid talk in the banking sector has been rife in the past six months, with hardly a week passing without talk of an offer coming in for one of the UK lenders. Yesterday, it was the turn of Northern Rock, as traders said that a bid will come in for the Newcastle-based mortgage bank.

Once again traders pointed the finger at BSCH, the Spanish banking giant that bought Abbey in July 2004 for £8bn, and Crédit Agricole, which until recently was thought to be in hot pursuit of Alliance & Leicester. Talk that the group may link up with rival Bradford & Bingley, 4.5p firmer at 469.25p, was also doing the rounds.

Shares in Northern Rock topped the FTSE 100 leader board as traders decided that after a few weeks of being out of focus the banking sector was due another round of bid speculation. Northern Rock added 40.5p to close at 1,040.5p while Alliance & Leicester closed a penny better at 1,167p.

The supermarkets group Morrison was in demand after weekend reports that a consortium of private equity groups including Permira and CVC Capital Partners is considering making an offer for the group. The story has been around for a couple of months and although volume was good, with more than 42.5 million shares changing hands, there were enough sellers taking profits to suggest that not everyone in the market believes that a bid will come. Even so, the shares closed 7.25p better at 201.75p.

London shares continued where they left off last week, with the FTSE 100 index adding another 51 points to close at 5,884.4, edging closer to the 6,000 level and leaving the market less than 5 per cent off the year high. Trading in New York started well, with the Dow Jones index showing early gains of more than 50 points. London shares were boosted by strength in oils and mining, with Cairn Energy the lone faller in the sector. A bout of profit taking saw shares in the exploration and production group close 40p worse at 2,153p after a trading update that failed to encourage buying.

Coming off Goldman Sachs's "conviction sell" list gave Unilever shares a small boost, 7p firmer at 1,223p, although the broker remains fairly downbeat on the group's prospects, citing the cost of growth which continues to lag behind the group's European peers Danone and Nestlé. Talk of a bid to break up the food and consumer goods group continues, but traders said a private equity-backed offer is looking unlikely in the short term with a broad range of other targets thought to be further up the pecking order.

The insurance broking group Jardine Lloyd Thompson was among the best performers in the FTSE 250 after the broker Morgan Stanley upgraded the stock to "equal weight" from "underweight", citing poor share price performance, continued industry consolidation and the potential benefits of the purchase of privately-held rival Heath Lambert. There was also talk that the merged group will shed 400 jobs to fund the Heath Lambert acquisition. The shares closed at 400.5p, up 28.5p.

Traders are still expecting another bid for the commercial oven and refrigerator manufacturer Enodis after suitors Manitowoc and Middleby were told to "put up or shut up" by 17 July by the FSA, after both had offers rejected in the last month. Manitowoc, a US heavy equipment manufacturer, last week revised its earnings guidance upwards after a strong year of trading and is thought to be flush with cash. Even so, some traders booked profits and Enodis closed 3p worse at 213p.

GW Pharmaceuticals, the developer of marijuana-based multiple sclerosis treatments, was well bid as traders speculated that the group is poised to announce a distribution partnership with an American pharmaceutical group. Traders said that positive news should send the shares back to the 100p level, despite continued losses and development setbacks. The shares added 5.25p to close at 79.5p.

It has been a grim year so far for shareholders of Interlink Foods, and the rumour in the market is that the group is poised to warn on earnings for the second time since May. The shares were trading at 700p as recently as 1 May, and tanked another 34p to close at 303.5p yesterday, a three-year low. Traders reported widespread shorting of the shares, and expect the group to comment on the share price movement today.

Sticking with widely shorted stocks, iSoft was down again on heavy volume, as talk of Accenture dropping the company from its NHS information technology contract intensified. One analyst said Accenture may try to divide the contract between iSoft and another supplier, but any adjustment on the contract will be dire news for iSoft. The shares took another dive to close 5.75p weaker at 71.5p.