Market Report: Smiths Group climbs on sell-off speculation

Smiths Group was among the strongest performers in the FTSE 100 as talk of a possible break-up of the company excited the market.

Analysts were forced to trim forecasts for the aerospace and medical group a fortnight ago as the company revealed higher-than-expected costs on a tanker research and development programme. That has led to speculation that either a buyout firm might be looking at the company or management may sell off non-core divisions.

One Smiths analyst said: "The sum of the parts valuation could be as high as 1,200p when you look at the multiples given to individually listed peers. What was unusual about the recent announcement was that it came as a complete shock, and it would not be a surprise if private-equity firms were running the rule over Smiths." Its shares rose 16.5p at 944.5p.

It was another quiet day across the wider market, with the FTSE 100 closing almost unchanged, down 0.8 points at 5791.5. Ben Bernanke, the man chosen to fill the shoes of Alan Greenspan at the US Federal Reserve, was the main reason for the lack of direction on European markets as traders waited to see how his inaugural testimony would go down.

The top performer among blue chips was BAA, as it was suggested that the Spanish infrastructure company Ferrovial may have secured at least some of the financial backing it will require to launch a full bid. Its shares initially surged to 828p, up 49p, but profit-taking later in the day saw the stock close at 810.5p, a rise of 31.5p.

Reports have linked the Singaporean government and French-Canadian fund manager Caisse de Dépôt et Placement du Québec with Ferrovial's bid, but market sources said other infrastructure funds could play a part in an offer. Including debt BAA is valued at more than £12.5bn.

Once again, the banks provided traders with more corporate-activity chatter. Yesterday it was Barclays, more often regarded as prey rather than predator, being talked of as a potential suitor for Commerzbank, as the German bank announced an uninspiring set of numbers. With a market capitalisation of about €19bn, Commerzbank is about one-third the size of Barclays, whose shares fell 7p down at 649.5p.

One trader said: "The talk around the banks will not die down so a big deal will come eventually. Commerzbank would be a good fit, and size-wise is very much in play for Barclays. Launching a bid could prevent anyone doing the same to Barclays."

Elsewhere in the sector, Lloyds TSB for once found itself not in the takeover frame, ending the day off a penny at 549p, while Royal Bank of Scotland fell 8p to close at 1,766p.

British Airways, up 11p to 334.5p, bounced back after a sell-off on Tuesday as news broke that US antitrust officials had raided BA offices as part of a cargo-price cartel investigation. Most analysts believe any conclusion to the investigation is a long way off, and traders bought the stock in the belief that the fall was a knee-jerk reaction from nervous investors.

Cadbury Schweppes maintained the momentum Tuesday's takeover speculation started, with the US confectionery giant Hershey's being the latest name linked to the Birmingham-based chocolate and soft drink manufacturer. Cadbury shares rallied 9.5p to 564.5p.

Record half-year numbers from BHP Billiton, the world's largest integrated mining company gave the sector a boost after recent nervous trading sessions. Kazakhmys rallied 26p, or 3.2 per cent, to 837p, while Antofagasta gained 22p to 2,011p as stronger prices in the copper markets underpinned both stocks. BHP closed 12p higher at 962p.

Outside of the large-cap stocks, property watchers kept a close eye on the AIM-listed Songbird, up 14p to 233p. It is the listed remnants of Canary Wharf Group - the shares trade in non-voting B form and give holders access to about 17 per cent of the Docklands property, with the majority of the balance owned by venture capital funds runs by US investment bank Morgan Stanley. Brokers noted buying by some "interesting" property investors and unusually high recent trading volume, hinting that Morgan Stanley may be about to exit its investment.

There was cheer for long-term holders of Medisys, the medical devices group, as it announced a "considerable improvement" in trading conditions. Its shares improved 1.68p to 4.8p on volume of 27.7 million shares.

Finally, there was an encouraging start to trading on AIM for Personal Screening, a supplier of self-test medical kits, as it transferred from Ofex and raised £800,000 of new funds. The broker SP Angel placed 79.5 million shares at 1p each, and strong early demand saw its shares close at 2.25p.