Market Report: P&O investors abandon ship as bid hopes wane

Those punters who had bet on a bid for P&O from Singapore's Temasek rushed to exit the UK ports group yesterday. Their retreat was prompted by news that the Singapore state investment company had bought a 20 per cent stake in Hutchison Whampoa's Hong Kong International Terminal business for $925m (£512m). Traders took this development as making a move by Temasek on P&O less likely.

Those punters who had bet on a bid for P&O from Singapore's Temasek rushed to exit the UK ports group yesterday. Their retreat was prompted by news that the Singapore state investment company had bought a 20 per cent stake in Hutchison Whampoa's Hong Kong International Terminal business for $925m (£512m). Traders took this development as making a move by Temasek on P&O less likely.

Meanwhile, comments from Merrill Lynch also did P&O, down 9p to 332p, no favours. The US broker admits that recent corporate activity in the ports sector has seen existing operators attract high valuations. And Temasek's latest expansion into Hong Kong is no exception. But Merrill was quick to note that the Singaporean company is keen to diversify its ports operations away from local activities, which are low yielding, and towards China's high-growth market.

It believes that P&O's operations are nowhere near as exciting as the likes of Hutchison's and so calculates that the stock's fair value is somewhere between 347p and 382p. Merrill said: "We would remind investors that approximately half of P&O's ports assets are outside Asia, where markets are more mature and where growth rates can be lower."

Meanwhile, profit-taking left the FTSE 100 3.6 points lower at 5,046.8 and the FTSE 250 17 points weaker at 7,289.

Next gave up 11p to 1,460p after Dresdner Kleinwort Wasserstein warned that growth at the retailer is likely to slow over the coming year and so downgraded its profit forecasts. Dresdner calculates that Next needs to achieve like-for-like sales growth of 1 per cent this year if it is to avoid seeing its profit margins slip. However, it fears the retailer will see a like-for-like sales fall of about 1 per cent. And the German-owned broker forecast more doom in 2006 for Next when, it believes, the retailer will suffer a like-for-like sales fall of 2.5 per cent.

Dresdner also pointed out that Next would be negatively impacted by any revaluation of the Chinese currency. Such a scenario has been widely speculated and would be bad news for the retailer because it sources about 50 per cent of its products from China.

Lloyds TSB, 5.5p better at 468.5p, bucked the negative trend after the banking giant's management made an upbeat presentation to analysts at Merrill Lynch. After the meeting the US broker told its clients that Lloyds had turned the corner in terms of earnings momentum. Although the bank is the UK's largest unsecured lender it is convinced that it will weather the downturn in the credit cycle better then others because of its focus on lending to existing customers whom the company knows well.

Cable & Wireless, up 2.25p to 142p, finished the day as the best performer in the blue-chip index as ABN Amro waxed lyrical about the exciting prospects for the group's Bulldog broadband internet services and its portfolio of national telecoms carriers. ABN upped its price target on C&W to 157p from 137p.

Tullow Oil rose 2.5p to 183.75p as the explorer said it had struck gas at its Opal well in the North Sea. Brokers expect more such finds from Tullow in the coming months.

Market professionals tipped today's float of Empire Online to see shares in the group go to a significant premium to their issue price. Empire has raised £125m at 175p but the stock is likely to start trading at about195p. Empire specialises in the promotion of online gaming sites. Its AIM fund raising is believed to have been four times subscribed.

Lower down the pecking order, Timestrip added 0.38p to 4p on whispers that a major institutional investor is looking to pick up a sizeable chunk of stock. The company has developed a product that can tell when packaged food is no longer edible. Gossips reckon a number of food-sector giants could soon be testing out Timestrip's innovation.

African Eagle added 1.75p to 19.5p on the back of a bullish drilling report from its Mkushi copper project in central Zambia. Northern Petroleum added 1.13p to 11.50p after acquiring eight oil discoveries in the Netherlands. As a result of the deal, Northern finds itself in a joint venture with a company owned by Shell and ExxonMobile.

Finally, word has it Ovoca Resources, unchanged at 7.37p, was last night putting the finishing touches to a £1m fund raising which is likely to be unveiled before the end of the week, possible as early as today. When the mining group last updated the market, a little less than a month ago, it boasted that its Oleninskoye prospect in Russia had an estimated 900,000 ounces of gold. In addition to the gold, Ovoca said the site had the potential for platinum mining.