Market Report: Premier leads list of Shell takeover candidates

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The Independent Online

It looks like traders are taking the scattergun approach in attempting to predict Shell's corporate strategy. The oil giant was linked to no fewer than three takeover targets yesterday - Centrica, BG Group and Premier Oil.

So far, Shell has only confirmed it is "taking advice" on a possible bid for Premier Oil, the FTSE 250-listed oil exploration and production group with assets in Europe, Africa and south Asia. Traders said Shell bidding for Centrica would make a more palatable deal for British regulators after the Russian group Gazprom signalled its interest in Centrica six months ago. BG would be, by a considerable distance, the biggest deal of the three, with a market capitalisation approximately 2.5 times larger than that of Centrica and more than 20 times greater than Premier's.

Traders are certain Shell is mulling a large acquisition. For most observers, the smart money is on Premier Oil, 6.5p firmer at 1,049p, which complements Shell's existing exploration and production base and, unlike BG Group or Centrica, is unlikely to interest the regulators. Shares in BG climbed 6.5p to 690.5p as talk of an 800p-per-share bid did the rounds, while Centrica added another 5.75p to close at 308.25p, an all-time high closing price. Shell added 2p to 1,896p.

Water utilities were in focus after the broker Morgan Stanley revised its ratings on the sector. Severn Trent came off worst, as the broker cut its recommendation to "equal weight" and trimmed its target price to 1,255p from 1,290p on valuation grounds. The broker also cut its forecasts for Kelda, the Yorkshire-based utility provider, to 800p. Severn Trent fell 21p to 1,310p, while Kelda lost 12.5p to 830.5p. Even Pennon, Morgan Stanley's preferred sector play, was unable to stop the rot, shedding 0.25p to 472.75p.

Another strong day for mining stocks, up on the back of heavy buying in the futures markets, was not enough to prevent a bout of profit-taking knocking the FTSE 100 back 4.9 to close at 5981.7. Mining stocks occupied four of the top five slots in the FTSE 100 leader board, with copper producers Kazakhmys, up 44p to 1,331p, Rio Tinto, 49p firmer at 2,824p, and Vedanta Resources, 21p better at 1,421p, all in demand.

Excellent first-quarter results from the plant-hire operator Ashtead sent the stock to the top of the FTSE 250 leader board, 16p better at 148p. Pre-tax profits more than doubled to £24m after the acquisition of NationsRent, underpinned by a successful rights issue priced at 100p. Brokers UBS, Cazenove and Investec all issued positive research notes on the group, with UBS reiterating its 222p price target.

Investors are backing a knockout bid for the gambling and casino group Stanley Leisure, up another 29p to 840p, after confirming on Monday it is in talks that may lead to an offer. However, brokers were in more cautious mood after the stock added more than 25 per cent in the past two sessions, with Evolution Securities, Panmure Gordon and Citigroup all expressing concern over the valuation. Merrill Lynch was even more bearish, reiterating an outright "sell" recommendation.

The Blacks Leisure takeover story is still doing the rounds, with talk of a significant stake-building exercise yesterday as the shares nudged 4p better to 408p. The retail entrepreneur Mike Ashley is thought to be planning a 450p-per-share bid after a poor summer of trading that has seen Blacks warn on profits twice.

Cape Diamonds, which peaked at 235p soon after coming to the market in May, continued to slide. Market makers said a large seller was in the market, forcing the price down another 9p to 108.5p. Cape is yet to make any kind of formal statement regarding its share price, and traders are rapidly losing what little faith they had left in the group.

The property services group Erinaceous, up 15p to 305p, reports results tomorrow, and the word is they will be well ahead of expectations. A bullish trading statement in June failed to reverse the share price slide from a March-high of 405p, but the interims are expected to push it significantly better.

The volume in Intec Telecom was huge, with traders suggesting the US venture capital group General Atlantic is poised to bid. General Atlantic, which is the largest shareholder in Intec, is thought to be mulling a 45p-per-share bid. The stock closed 1.5p better at 38.5p as almost 17 million shares changed hands.

Finally, Rubicon, the customer relationship management group, begins trading on AIM today. It raised £0.43m of new cash via a placing at 10p, organised by the broker WH Ireland.

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