Market Report: ARM gets cold shoulder as bid rumours fade

Profit-taking weighed on the London market last night, with ARM Holdings sliding to the bottom of the FTSE 100 thanks to a combination of fading bid hopes and share sales by directors.

The chip designer was 6 per cent or 19.9p behind at 312.1p as it emerged that its chief executive, Warren East, and chief financial officer, Tim Score, had offloaded parts of their respective holdings. The disclosure followed reports that the German chip maker Infineon was close to striking a deal to sell its wireless unit, with Intel being named as the likely bidder. Alongside Apple, the American semiconductors group has been mooted as a possible bidder for ARM, but the reports suggested that its interests lie elsewhere, prompting a round of profit-taking around the London-listed firm.

Overall, the market rally ran out of steam, with the FTSE 100 closing broadly unchanged at 5,396.48, down 0.6 points, and FTSE 250 retreating to 10,135.87, down 25.3 points. The cheer inspired by HSBC's half-yearly profits faded, limiting gains for likes of Lloyds Banking Group, which was 0.5p lower at 71.92p, Barclays, 1.2p behind at 342.75p, and Royal Bank of Scotland, which fell 0.1p to 52.05p. HSBC itself was 8.6p worse off at 671.4p, but Standard Chartered bucked the trend, closing up 41p at 1,902.5p last night.

In the mining sector, commodity markets softened, leading to a mixed performance in related equities. Copper prices, for instance, backed off from three-month highs, though the view that markets may have priced in the prospects for a near-term pullback in the pace of global growth helped to cap losses. BHP Billiton, down 15p at 2,019.5p, and Kazakhmys, down 16p at 1,262p, were among the losers, but Lonmin managed to rise by 13p to 1,645p and Antofagasta was flat at 1,037p.

The British Gas owner Centrica was 11.1p better off at 321p after Goldman Sachs reiterated its "conviction buy" view while marginally upping its estimates on the back of the results. "We believe that guidance and our forecasts retain some headroom against short-term risks of higher gas prices or more aggressive tariff action by competitors," the broker said. "Despite the modest earnings upgrade, we continue to believe Centrica trades on low multiples relative to its earnings growth and more stable business model."

The pharmaceuticals group Shire was ahead, building, like Centrica, on a combination of a lower appetite for risk and some positive broker comment. The pharma group, which was 19p higher at 1,473p, also announced plans to buy Belgium's Movetis for €428m to bolster its portfolio of gastrointestinal products. Separately, Citigroup abandoned its "sell" view on the stock, upgrading the pharma group to "hold" with a revised 1,615p target price, compared to 1,425p previously.

Back on the downside, the replacement hip and knee manufacturer Smith & Nephew was 5p weaker at 561.5p following some words of caution from Morgan Stanley, whose analysts lowered the stock to "equal weight" from "overweight". The broker said that, based on second-quarter trends, it was scaling back its growth estimates owing to a "meaningful deceleration" in the reconstruction market.

Intercontinental Hotels failed to make any headway, closing flat at 1,121p despite JP Morgan Cazenove upgrading its estimates and adding the stock to its widely followed analyst focus list. "We believe the Revpar [revenue per available room] outlook remains favourable for 2011," the broker said, repeating its "overweight" view on IHG. "Expected supply growth of less than 1 per cent is well below the 10-year average of 2 per cent and the expected demand growth of 2.9 per cent."

Elsewhere, Taylor Wimpey rallied 2.58p to 31.1p after posting interim results. The stock was also boosted by JP Morgan Cazenove, whose analysts argued that the recent run of weakness across the housing sector was unjustified. "This underperformance surprises us because during July we saw profit upgrades from Barratt Developments, Berkeley and Persimmon, and Bovis Homes suggesting a return to dividends for the full year.... The national housebuilders are currently trading at an average price to last reported book [value] of 0.63 times, a 37 per cent discount to asset value," the broker said as Barratt rose by 2.3p to 103.5p. Berkeley edged up by 0.5p to 822p, Persimmon firmed up by 4.5p to 379.7p and Bovis gained 5.5p to 365.2p.

St James's Place was under pressure, ending down 0.2p at 277.5p, after Goldman switched its view to "sell", telling clients that while the wealth manager was geared for sales growth, it was "too expensive". The broker said that the strength that followed the company's interim results at the end of last month were, in its view, "primarily" down to the news that majority shareholder Lloyds had no intention of selling its stake. "St James's Place has a successful business model to raise sales, but while its appetite for growth remains, cash and shareholder dividends are likely to remain constrained," Goldman added, scaling back its target for the stock to 262p from 270p.

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