Market Report: Takeover chatter breathes life into Barclays

Barclays got the banks' reporting season off to a flying start this week, and the Collins Stewart Tullett analyst Sandy Chen reckons the group is the only UK bank that is a serious contender to be taken over.

Mr Chen gives a potential valuation of £17bn to BGI, the world's second-largest fund manager after UBS, plus another £39bn for the rest of the bank. Barclays has a market capitalisation of £43bn, so Mr Chen's valuation of both parts of the bank, at £56bn, comes in way higher.

He said: "I am very sceptical about most of the takeover chat in the banking sector, primarily due to the amount of goodwill that a buyer would have to pay. Regulations would mean the buyer would have to come from only about six or seven global financial institutions. But asset managers trade at significantly higher multiples than banks, and BGI is worth a hell of a lot more on its own than as part of Barclays."

Ironically Mr Chen's boss at Collins Stewart Tullett is Terry Smith, who famously made his name as a banking analyst at Barclays by writing a "sell" note on his employers. The bank recognised the courage of his convictions by promptly sacking him. What Mr Smith makes of his analyst's bullish note is anyone's guess.

On a day when a raft of poorly received corporate results dragged the FTSE 100 index down 36.4 points to 5,836, Barclays was one of the few bright spots, rising 2.5p to close at 666.5p.

Reuters, down 51.75p at 399.5p, BAE Systems, down 26.25p at 421p and Centrica, 10.5p lower at 285.75p, disappointed the market with lacklustre year-end numbers, dulling sentiment and encouraging profit-taking after what has been a blistering start to the year in the markets.

A bad day for mining stocks also generally translates into a bad day for the market, and yesterday was no exception. All of the major London-listed miners were in negative territory as traders continued to take profits amid fears of a slowing global economy. BHP Billiton led the slump, dropping 19p to 989p, while its rivals Xstrata dropped 20p to 1726p, Rio Tinto fell 53p to 2822p and Antofagasta closed 43p lower at 2122p.

Bucking the downward trend was the oil and gas explorer Cairn Energy, on the back of reports in the Indian press that its partner Oil and Natural Gas is poised to launch a bid for the company.

Cairn shares rallied 77p to 1,957p on the news, as the oil giants BP and Shell followed the rest of the market lower. BP closed 7p lower at 644p and Shell tracked 23p lower at 1822p. Also in positive territory was Cable & Wireless as several market sources again claimed a bid was imminent, valuing the company at 125p a share. Business was brisk with 115 million shares changed hands as dealers and traders moved to cover short positions, pushing the price 2.5p higher to 110p.

Capita, the support services group, reported better- than-expected full-year pre-tax profits of £177m, about £7m ahead of forecasts. The company also said it has won another £360m of contracts since the start of the new financial year and made positive noises abut the rest of 2006. The broker Deutsche Bank upped its price target on Capita to 510p as its shares rose 14.5p to 455p, a four-year high.

There was also bid talk surrounding the second-line retailer House of Fraser, 2.75p better at 113.25p. Christmas trading, as at most retailers, is thought to have been poor but that has not prevented offers for the likes of HMV Group and The Body Shop. Once again, the talk surrounded one of the big buyout houses, most of which have a long tradition of investing successfully in retailers.

Stockbrokers are enjoying a boom not seen since the heady days of the dot.com bubble. But not everyone is convinced, as Altium Securities downgraded shares in rival Numis Corporation to "sell", citing the companies tightly held stock and lack of capital-management programme. In a note to clients, Altium said: "Last year Numis made an underlying operating margin of 43 per cent, which we do not believe is sustainable over the long run. In the meantime, Numis seems to show no sign of addressing the excess cash on the balance sheet, or increasing the dividend." Shares in Numis fell 2.25p to 303.25p.

The Australian oil producer Anzon Energy was among the best performers in the small caps, rising 20.5p to 112p after positive news on its well in the Bass Straight. Once at full production the company expects 20,000 barrels of oil a day, about 20 per cent more than initial estimates. Finally, there was a good start to trading on AIM for Econergy International. The company trades carbon credits, and after an institutional placing at 100p its shares closed 11.5p higher at 111.5p.