Market Report: Pru vulnerable as AXA focus switches to Aviva

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The Independent Online

Corporate activity rumours have returned to the insurance sector, although judging by the reaction in the market most traders have given up hope of any deals being struck.

After months of betting that the French insurance giant AXA would make a play for Prudential, the story doing the rounds yesterday was that AXA has changed its target and is considering making an offer for Aviva, the UK's largest general insurance group.

Some analysts believe Aviva makes a better fit for AXA than Prudential, even if it does mean a bid would have to be about 25 per cent more than it would have had to pay for Prudential.

If a bid does come for Aviva, traders expect to see the price of Prudential shares fall by at least 10 per cent, as the stock has been boosted by a bid premium for several months. Despite the chat, and the positive reaction from analysts, shares in Aviva ended 0.5p cheaper at 737.5p. Business was brisk with nearly 16 million shares changing hands. Prudential fared slightly worse, dropping 7.5p to 598.5p.

BT Group pleased the market by reporting robust full-year results, slightly above consensus forecasts. Perhaps more importantly the company reported strong growth in its broadband operations and said that, so far at least, Carphone Warehouse's free broadband offering is having no impact on subscriber numbers. The house broker Cazenove upgraded its 2006 forecasts on the back of the numbers, sending BT shares 17p better at 226.25p, the best performer in the FTSE 100. However, traders noted that the battle for broadband provision is still in its infancy and competition will intensify. Carphone Warehouse stock fell 9p to 321.5p as investors decided its broadband offering was not having the expected impact on the market.

In the wider market, early morning selling pressure led some market makers to expect a bloodbath after Wednesday's carnage, but it failed to materialise and tentative buying supported London shares, although the FTSE 100 closed fractionally weaker at 5671.6, 3.9 points lower on the day.

The world's largest maker of tin cans, Rexam, was also in demand, 6p better at 480p, as the company continued its European investor roadshow. This summer's World Cup is expected to give the tin-can industry a big boost, with current year sales already thought to be 5 per cent higher, as armchair supporters stock up on enough beer to see them through the stress of watching lots of football.

The house builder Persimmon was the worst performer in the FTSE 100, as investors concerns over possible rising interest rates put the brakes on the sector. Talk of corporate activity has waned, although many traders remain convinced there will be more consolidation. Persimmon fell 53p to 1,148p, it's lowest close of the year, while its smaller rivals Taylor Woodrow, 19p weaker at 320.25p and Barratt Developments, 45.5p worse at 844p, also hit new lows for 2006.

Elsewhere among mid-caps, the recruitment consultant Michael Page had its worst day of trading in four years, falling 19.5p to 363p. By coincidence, its stock has risen almost 363 per cent since its low of 78.5p in November 2003, so long-term shareholders have enjoyed performance that has significantly beaten the wider market and can be forgiven for locking in some profits.

There was good news for White Nile, the oil explorer chaired by the former England cricketer Phil Edmonds, as it appointed Seymour Pierce as its nominated adviser. The company has been looking for a new broker since Numerica Capital Markets stopped acting as adviser to AIM-listed companies. The news sent shares in White Nile 9.75p better to close at 126.5p, a rise of 8.4 per cent. However, Central African Mining, also chaired by Mr Edmonds, was out of favour, dropping 7.25p to 68.25p.

Sticking with smaller companies with risky foreign operations, the security provider ArmorGroup International continued to slide after falling through a tip-sheet stop-loss at 72p, prompting a wave of retail sellers. Its shares have fallen more than 40 per cent this year, and closed at an all-time low of67.5p yesterday, down 7.5p. AG, once chaired by the former defence secretary Malcolm Rifkind, has seen its value decline from £143m just over a year ago to £35.6m yesterday.

Resmex, mentioned in this column yesterday, surprised investors by changing its name to Xstract Energy this morning. Rumours circled the market that the hedge fund manager RAB Capital is mulling a "significant" stake in the company at 12.5p per share, although the stock closed unchanged at 9p.

Look out for Hutchison Chinese Media, due to list on AIM today. The first Chinese pharma group to list in London raised £40m through a placing at 148p a share that was three times oversubscribed.

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