Market Report: Avocet, Chemring dive into bid frame
There is only so far a stock can fall before takeover talk starts circling. The share prices of both Avocet Mining and Chemring have plummeted recently in response to disappointing updates, and yesterday analysts in the Square Mile were suggesting they could now be vulnerable.
Avocet has been the worst-hit of the two, with the gold digger's share price losing half of its value since it slashed its production forecast last week. While the news prompted Nomura's Tyler Broda to cut his target price to 120p, he added that its attractiveness as a potential bid target should help its cause.
Saying the miner's problems were solvable with further funding, Mr Broda added Avocet's current weakness, growth prospects and need for financing "could see [the group] build in a takeover premium, especially given the well publicised cash build in the sector."
Chemring, meanwhile, has dropped 15 per cent in the wake of last month's admission that delays to US government contracts had resulted in its first-half profits slumping. The scribes at UBS argued the military equipment maker may now attract a suitor and added it to their 'M&A watch list', saying its "current valuation and relatively small market cap could facilitate a takeover by a larger defence prime contractor".
Investors were clearly not in the mood, however, as both groups finished in the red. Avocet ended up as one of the worst fallers on the mid-tier index, sliding 5.85p to 71.25p, while Chemring dipped 5.1p to 269p.
The mood was rather cheerier around Meggitt, another which UBS's analysts believe may find itself in the sights of a predator. The aircraft-parts maker ticked up 7.3p to 395.6p after they suggested Goodrich (itself being bought by United Technologies Corp), Honeywell or Safran as possible bidders.
Growing hopes of further stimulus measures from China meant commodity stocks were pulling the FTSE 100 up, with the top-tier index rising 47.09 points to 5,687.73 – its highest since early May.
The wooden spoon was left in the hands of Aberdeen Asset Management after Credit Suisse revealed it had dumped another load of shares. Under pressure to shore up its balance sheet, the Swiss bank has been steadily selling down its investment in the fund manager recently with the latest disposal of a 7 per cent stake believed to have netted it over £200m.
It means Credit Suisse has got rid of almost all its Aberdeen shares, having once held 25 per cent. The latest sale was believed to have been completed in just 15 minutes at 255p a pop, the top of the range given. Still, this was a fairly steep discount its share price and prompted it down 9.7p to 255p.
The City is still urging Reed Elsevier to split up. Broker Liberum Capital became the latest to lend its voice to the calls, with its analysts saying "a break-up of what effectively is a company with few synergies [is] the best route" as the publisher ticked up 7p to 523p.Talvivaara was suffering on the FTSE 250. The Finnish miner was smacked down 21.4p to 148.6p after announcing that its output target for the year was too optimistic.
Another knocked back following disappointing news was Salamander Energy. The oil explorer slipped 4p to 167.6p after revealing it was plugging and abandoning its latest well in Thailand.
Punters were getting excited about Gulf Keystone Petroleum. The Kurdistan-focused explorer spurted up 39.5p to 215p on Aim, with a number of stories being pinned to the move including, of course, rather familiar takeover speculation. However, bulls on the stock played this down and said it was at least partly thanks to the City believing the stock – which moved higher than 425p in February – looks cheap.
Elsewhere, the green light from European regulators for its Flutiform asthma therapy was enough to lift drugs group SkyePharma 20p higher to 98p on the fledgling index.
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