Market Report: Reed all about it: takeover talk lifts publisher

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The Independent Online

The publishing giant Reed Elsevier seems to have been a virtual bystander during the three-year bull run enjoyed by global equities, but if Credit Suisse is right there could be some long-overdue cheer for shareholders.

The Swiss investment bank told clients on Wednesday that despite maintaining a neutral rating on the shares, a private equity bid for Reed or tie-up with Wolters Kluwer could generate strong returns. Shares in Reed Elsevier closed 20.5p firmer at 602.5p, among the best performers in the blue chips. Even so, some traders consider the chat to be highly speculative. One said: "This looks like more pushing ideas in public because they have not been taken seriously in private. This trend is a bit alarming because shareholders could start pressurising companies into doing deals that they don't want to do."

Aside from takeover chat at Reed, a raft of recent bullish broker updates and hopes of a revival in the advertising market boosted other media stocks. Pearson rallied 29p to 805p, just short of a four-and-a-half-year high, with regional newspaper publisher Johnston Press 10p firmer at 396.5p.

A review of the banking sector by US broker Merrill Lynch resulted in a "sell" recommendation for HSBC, although the shares closed 1.5p better at 924p. The UK's largest bank had an awful time last year, ending 2006 in the red and the only banking stock to end the year lower. Merrill upped its target for Standard Chartered to 1,730p, helping the shares surge 31p to 1,488p. More than a handful of traders believe that Standard Chartered's largest shareholder, the Singaporean government fund Temasek Holdings, will make a full bid for the bank some time in 2007.

The markets were spooked at midday by the surprise interest rate rise, but more soothing words came from Europe where Jean-Claude Trichet hinted at a softer stance on European rates. After a 68-point swing soon after the UK interest rate announcement, the FTSE 100 rallied strongly and closed 69.4 better at 6230.1.

Mortgage lenders had a harder time shaking off the interest rate rise. HBOS shed 11p to 1,145p while Northern Rock closed 16p weaker at 1,158p.

The rise in UK rates also sent a shockwave through the housebuilding sector. The hardest hit was Redrow, as the rate decision coincided with a cautious trading statement, prompting Dresdner Kleinwort to reiterate its "sell" advice on the shares. Redrow fell 22p to 668.5p, with Barratt Developments 25p worse at 1,204p despite a price target increase to 1,405p from ABN Amro. Persimmon shed 15p to 1,457p.

Pub stocks were out of favour again as broker Panmure Gordon highlighted comments from the industry that a conversion to Real Estate Investment Trust status is unlikely in the near term. The broker cut its recommendation on Punch Taverns and Greene King on valuation grounds, sending the shares 45p worse to 1,169p, and 33p to 1,083p respectively.

In the small caps, a bullish note on Aurum Mining from Arbuthnot Securities sent the shares 11p firmer to 121p. Analyst John McGloin believes the stock should now be rated as a gold and copper producer rather than just as an exploration group, and as such is currently trading at a huge discount to sector valuations. Mr McGloin told clients that a re-rating could see the stock continue its strong performance of 2006 and that the shares are worth up to 264p.

Optimistic Entertainment has certainly failed to live up to its name since making its debut on AIM in early 2005 at 130p. The price graph resembles a ski-jump slope, but long-suffering shareholders had some reason to cheer yesterday as the television and media group told investors that it expects to break even on an operating level before the end of the first half. The shares closed 3p better at 7.75p.

Disaster of the day was the online retail group Ideal Shopping as it reported a slowdown in second-half sales. Broker Numis Securities slashed its full-year profit forecast from £9.1m to £7.4m and will cut its 450p price target as the shares tanked 47.5p to 222.5p.

CEPS, an investment company formerly known as Dinkie Heel, rallied strongly to close 0.27p firmer at 1.07p on news it is to acquire Sunline Direct Mail, a private packaging company. The company will raise £2.4m in a placing at 50p per share after a 1-for-50 consolidation of the stock.

Isotron shares gave investors a final boost before the takeover by Synergy Healthcare completes by climbing 67.5p to 892.5p. Synergy added 30.5p to 735.5p.