Market Report: Aggreko powers ahead amid takeover rumours

Aggreko led the blue chips as traders bought in on a combination of broker support and bid rumours last night.

The stock gained nearly 6 per cent or 83p to 1,545p following rumours of takeover interest and a plug from HSBC, whose analysts highlighted the fact that "global energy consumption is expanding more quickly than generation capacity", both in and beyond the OECD club of rich countries. This opens the door for future growth in Aggreko's international power projects division (IPP), which provides temporary power to utilities, armed forces, governments and major industrial users, and is "likely to remain a source of earnings upgrades", according to the broker. Moreover, IPP margins may prove more resilient that management's caution might suggest and market estimates currently assume.

"While we have accounted for nearly 800 basis points of margin erosion over the next five years, there are compelling reasons why margins may prove more resilient than we (and consensus) have assumed. In short, Aggreko is a dominant global provider of essential types of assets, for which demand is not only expected to double by 2015, but already outstrips available and forecast supply," HSBC said, adopting an "overweight" stance on the stock. "There are few business environments more conducive to dictating and defending prices."

Overall, the markets soared as bargain hunters, lured by the sharp pullback in recent weeks, continued to pile in. As a result, the FTSE 100 booked a healthy 1.8 per cent or 90.63 point rise to 5,105.45, while the mid-cap FTSE 250 index closed at 9,703.69, up 141 points. The banking sector stood out, with Lloyds adding 2.51p to close at 60.7p, Royal Bank of Scotland climbing to 44.36p, up 1.53p, and Barclays rallying by 10.4p to 302p.

The move up was pinned on a variety of factors. For Lloyds, traders highlighted reports that Peter Levene, chairman of the Lloyd's of London insurance market, and David Walker, a former Morgan Stanley executive, were setting up a vehicle to acquire British banking assets, with the news prompting hopes of a bidding war for the state-backed lender's branches. Similar factors were said to be supporting RBS, while the sector as a whole was boosted by Credit Suisse, whose equity strategist turned more positive on European banks.

The sector was also in focus following the overnight release of details on the sovereign debt stress tests being put together by Committee of European Banking Supervisors, with RBS, HSBC, Barclays and Lloyds among the lenders that will be tested.

Intertek, which tests the quality and safety of products for numerous companies across a range of sectors, was 54p better off at 1,575p after Exane BNP Paribas turned positive, switching its stance to "outperform" in a new sector review. The broker said the stock was its preferred play owing to its discount to peers, and the possible upside to the upcoming half-yearly results, which are due next month.

Broker support also boosted WPP, the advertising giant, which rose by 17.5p to 647p after Morgan Stanley abandoned its negative stance, moving the stock to "equal weight" from "underweight". While keeping its 653p target price unchanged, the broker pinned its change of heart on the fact that caution over the economic outlook in Europe was leading investors to favour advertising agencies, "with their considerable US and South-east Asian exposure".

Elsewhere, the miners and oil companies drew steam from firmer commodity markets. Royal Dutch Shell, for instance, rose by 62.5p to 1,741.5p, while BP, which, as usual, was being watched for any developments over in the Gulf of Mexico, was 4.95p ahead at 367p. In the mining sector, Antofagasta was 28p stronger at 851.5p as copper prices touched a one-week high, while Xstrata gained 26.6p to 936p after Panmure Gordon dropped its "sell" recommendation.

"Our bearish stance on Xstrata reflected firstly an expectation of a correction in base metals prices and second, concerns over the risks in the growth pipeline. With base metal prices having moved down sharply, Xstrata is now trading below our 950p price target," the broker said, adopting a "hold" stance on the stock.

Intercontinental Hotels was another winner last night, adding 14p to 1,114p, despite UBS saying that the stock remained "fully valued" following the recent sale of the 442-room Intercontinental Buckhead Atlanta hotel in the US. "At the current share price, the stock is trading at close to a 50 per cent premium to the market on a 2011 price to earnings and free cash flow yield basis," the broker said, repeating its "sell" view.

Further afield, the graphics chip designer Imagination Technologies was 16.8p higher at 308.7p after Panmure Gordon revised its recommendation to "buy" from "hold", factoring in higher market share assumptions. "Imagination has [a] unique exposure to the structural growth of smartphones and tablets. We believe the foundations are in place for it to become an industry standard in very large markets," the broker said, raising its target for the stock to 330p.