Market Report: Analyst's cold water on deal chatter ices Sage

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The Independent Online

A slow Friday left Sage shares looking none too clever. The top-tier software group stumbled as analysts dampened recent takeover chat, and suggested the new boss has a fair few things to worry about.

UBS analyst Michael Briest slapped a "sell" rating on the stock, cutting it from "neutral" with a 260p valuation, adding merger and acquisition (M&A) activity was unlikely. "We do not see any obvious trade buyers, and feel financial buyers would be unlikely to make a compelling return above 300p at currently accepted leverage levels," he said.

Sage's chief executive, Guy Berruyer, may not have to come up with an M&A defence, but he faces "a number of strategic issues", Mr Briest said. He listed the need for a coherent strategy on key software, the maturity of its "support-led growth" model, and how to deal with competition from financial buyers for strategic assets. The shares closed down 12.9p at 269.6p.

One of the stocks generating the most interest was Barclays, especially as it involved Manchester City's owner, Sheikh Mansour bin Zayed al-Nahyan. The investor brought his profits from investing in the UK bank during the credit crunch to $3bn (£1.9bn) as he exercised 131.6 million warrants at 197.75p. Nomura sold 220 million shares in Barclays as part of a move to hedge the transaction. The result of the strategy, which was carried out before the market opened, was to drive down Barclays' share price. It closed down 6.8p at 297.25p.

Mining group Fresnillo was another major loser after Bank of America Merrill Lynch cut its rating to "underperform" on valuation terms. In response, the shares fell 41p to 1,248p.

Top of the pile in the morning was BAE Systems, one of the few to advance into positive territory, following support from HSBC. The broker moved its rating from "neutral" to "overweight" on hopes that the forthcoming government-spending cuts may not be quite as painful for BAE as the share price suggested.

The broker's analysts said the UK strategic review, set to be unveiled later this month, "should reduce uncertainty surrounding defence budget outlook: we think cuts may be 10 per cent versus the 25 per cent implied in the emergency budget". It moved the target price from 350p to 400p, adding: "Acquisitions and divestments could provide additional catalysts, together with continued returns to investors." The surge ran out of steam after lunch and the stock ended the day up 1.8p at 351.9p. It was overtaken as the miners strengthened in the afternoon. Top was Lonmin, up 69p to 1819p.

Another company benefiting from brokers' support was Amec. Société Générale released a note upgrading the European oil-services sector. It slapped a "buy" rating on the group and increased its target price from 1,010p to 1,150p. Shares in the company rose 7p as a result to 997.5p. The FTSE 100 was lower in the morning as traders looked towards the announcement of the non-farm payrolls from the US. Despite weaker-than-expected numbers, the index closed just 4.5 points down at 5,657.6.

On the second tier, top of the pile was Heritage Oil. UBS analysts sent the stock flying, after initiating coverage with a "buy" rating and a price target of 430p. Talk that it was a "top pick in the European exploration and production space," and was set to reveal a significant find, led the shares to climb 24p to 346p.

Worst on the second string was the Irish group Kenmare Resources, whose share price took a beating after it emerged that mining had stopped at an operation in Mozambique. Shares fell almost a fifth, down 3.79p to 17.2p.

In the wider market, Emblaze's shares performed strongly. The Israeli tech group stormed up 8 per cent, outstripping slight declines on the FTSE Small Cap index, after its UK subsidiary Emblaze Mobility Solutions won a four-year legal battle against HM Revenue & Customs. The appeal ruling came after HMRC withheld £8.8m of VAT repayments claimed since March 2006. After legal and other expenses, the company estimates net cash proceeds will be around $7m (34.4m). Shares in the group rose 4p to 49.75p as a result.

On the growth market, Beowulf Mining was putting its rivals to the sword. This followed an announcement which, while not as epic as its eponymous poem, still had investors charging in, pushing the shares up 12.5 per cent.

The 0.875p rise to 7.875p at the tiddler came when it revealed positive finds at its Kallak North operation in Northern Sweden.

Image Scan Holdings, which makes equipment for 3D and 2D X-ray imaging for homeland security and industrial inspection, leapt 0.5p or 28 per cent to 2.25p. The shares rose after the group forecast turnover of £1.5m for the year to the end of September. It said sales of security equipment continue to grow, with demand for the FlatScan portable X-ray more than doubling.

On the downside, Speedy Hire, which hires out tools and machinery, retreated after a bearish update. While the group said it would still hit full-year profits forecasts, it revealed a £1.7m hit because of the collapse of the social housing group Connaught. The shares rebounded later to close flat at 22.75p.

FTSE 100 Risers

Anglo American 2726p (up 61.5p, 2.31 per cent)

Mining big guns rebound on hopes of renewed financial stimulus from central banks.

British Airways 264.2p (up 2.8p, 1.07 per cent)

After a decade of talks, BA finally agrees co-operation deal with American Airlines and Iberia.

Man Group 250.4p (up 0.6p, 0.24 per cent)

Takeover rumour premium may be fading, but investors happy with AHL fund performance.

FTSE 100 Fallers

Autonomy Corporation 1451p (down 23p, 1.4 per cent)

A tough day for technology stocks, with Autonomy still reeling from three downgrades.

Arm Holdings 382p (up 5.9p, 1.52 per cent)

Shares in chip designer Arm weaken as broker Natixis cuts rating to "reduce" from "neutral".

Essar Energy 485.2p (up 8.8p, 1.78 per cent)

Price retreats, along with other blue chips in the sector, as the price of oil futures falls.

FTSE 250 Risers

EasyJet 451.6p (up 19.6p, 4.54 per cent)

Week's meteoric rise continues a day after Credit Suisse ups target price to 530p from 492p.

Hays 117.9p (up 2.7p, 2.3 per cent)

Recruitment agent shares rebound a day after posting a trading update, as RBS raises price target.

IMI 794.5p (up 16p, 2.06 per cent)

British engineering company sees gains after broker Panmure Gordon's "buy" rating with a 1,050p target.

FTSE 250 Fallers

Petropavlovsk 1020p (down 51p, 4.76 per cent)

Company formerly known as Peter Hambro Mining hit as it halves IPO of iron ore unit.

Taylor Wimpey 26.55p (down 1.22p, 4.39 per cent)

Housebuilders in focus for the sellers after a series of ratings cuts by Panmure Gordon.

Halfords 400p (down 8p, 1.96 per cent)

Bike and car parts seller continues to fall after results as brokers slash ratings.