Market Report: Punch takeover talk brewing in pub sector

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The Independent Online

Speculation about corporate activity was rife in the pub and brewery sector towards the end of last year. The trader's favourite for a bid was Marston's, until Monday known as Wolverhampton & Dudley, but the word in the market is that the first to go could be Punch Taverns.

According to some traders, Punch is already in talks with a private equity house but there is more than one interested party. Although details are vague, the word is that a bid could value the shares at 1,550p but that a bidding war could see that number go considerably higher. The one major stumbling block is debt; Punch is already up to its eyeballs in borrowings, with more than £5.3bn of long-term debt on the books. However, sales at Punch's estate of more than 9,000 pubs doubled last year and pre-tax profits surged 21 per cent. With plans in place to combat the smoking ban in England, traders believe a bid could come sooner rather than later. Punch closed 9p lower on profit-taking while Marston's shed 6.5p to 447p.

After a tough Christmas, BSkyB was boosted by Morgan Stanley's bullish comments on the broadcasting group. The US investment bank believes that despite a surge in competition, 2007 will be a year of relative stability for BSkyB, as it upped its price target to 600p from 525p. BSkyB was the best performer in the blue chips, closing 21.5p firmer at 544.5p.

Rumours that the US private equity investor Starwood Capital is poised to bid for InterContinental Hotels rumble on, and a fresh round of talk among traders boosted the stock to 1,221p, 21p better, in early deals. But the story has been around for a couple of weeks and a mild bout of afternoon profit-taking saw the shares close up just 8p at 1,208p.

The falling oil price continues to hurt Drax Group, and a chart break-out to the downside is also encouraging sellers. The shares have now lost 26.7 per cent since peaking at 967p in August, and the sell-off has even accelerated since the new year. The shares were again among the worst performers, closing another 24p worse at 705.5p.

In the wider market, London shares closed higher despite a mixed bag of newsflow. Buyers were few and far between in the oil and retail sectors, but a decent day of trade in the banking sector pushed the FTSE 100 up 1.9 points to 6,196.1. Credit Suisse upgraded its recommendation on HBOS and Lloyds TSB, sending the shares 33p better to 1,165p and 5.5p better to 581p respectively.

Buyers of Rightmove might live to regret getting a bit carried away yesterday afternoon. Confirmation of strong current trading sent the market into a frenzy, as the shares soared 66.75p to 457p, a rise of more than 16 per cent. More than enough for some traders, as the statement said results would be only "slightly" better than forecast. Broker Shore Capital expressed its concern about the rise, pointing out that the stock trades on more than 48 times earnings. Even so, the shares still closed 41.75p better at 432p.

Monday's rally in mid-cap oils was short-lived as a disappointing trading update from BP, coupled with further declines in the oil price, resulted in all of the gains being given back. Tullow Oil shed 12.25p to 363.75p, while Premier Oil fared even worse, falling 41p to 1,146p despite bullish comments from Oriel Securities. It seems like a long time since Premier confirmed bid talks in October, when bulls forecast a take-out price of more than 1,600p. Since then the talks have been abandoned and the shares have tracked back in line with the rest of the sector. All of the FTSE 250 oil stocks closed the session in the red.

In the small caps, oil industry consultants KBC Advanced Technology added 6p to 40p as the company gave investors a bullish pre-close trading statement. The stock has been in the doldrums since peaking at 60p last February but the company appears to have succeeded in turning things around. House broker Arden Partners reiterated its "buy" recommendation with a price target of 75p.

There is some speculation about corporate activity at tiddler Fundamental-E Investments, a cash shell with a colourful past. Average daily volume is little over 1 million, but more than 21 million shares changed hands yesterday as the stock rallied - albeit from very low levels - more than 40 per cent to close at 0.17p, 0.05p firmer.

Cobra Biomanufacturing pleased investors by moving back into profit for the first half of the year. Turnover rose 31 per cent to £10.1m and the forward order book is at a record high. The shares closed 1.5p better at 46.75p.