The waste management group Shanks attempted a comeback as bargain hunters piled in last night.
The stock suffered a bruising 15 per cent decline after ending takeover talks with the private equity group Carlyle. The resulting weakness left Shanks trading on a significant discount to both to its own historical multiples and the wider utilities sector, prompting Goldman Sachs to weigh in with some words of support. Moving the stock to "buy", the broker said that not only was the stock cheap on valuation grounds, but that the company, with its exposure to the non-municipal waste business, which responds to industrial production cycles, was well placed to capitalise on the improvement in the economy.
"Our economists expect a rebound in industrial activity in Shanks' key markets (Benelux and the UK), which should drive strong earnings growth at the company," the broker said, abandoning its "neutral" stance. "We would also not rule out the possibility of further [mergers and acquisitions] activity in the next 12 months," Goldman added, helping Shanks to rebound 6.2p to 108.4p.
Elsewhere, news of bid talks at the interdealer broker Tullett Prebon sent the market rumour mill into full motion last night.
The standout feature was Connaught, the services group, which maintains social housing and helps workplaces to comply with health and safety norms. The company has been the subject of vague bid chatter in the past, but this time an offer was said to be around the corner, with some pegging their hopes on rumours of a 350p to 400p per share proposal. The suitor was said to be keen to exploit the recent weakness in the stock, and was identified only as a larger player active in the same segments as Connaught, which added 11.5p to 302.5p. The sceptics suggested otherwise, attributing last night's strength to the possibility of short covering.
Further afield, the house builder Barratt Developments was the subject of deal chatter, with some anticipating interest from a rival. Persimmon, up 4.7p at 425.1p, was named, boosting Barratt's shares by 6.5p to 121.9p.
Tullett, which confirmed discussions with a third party, but declined to identify the source of the approach, closed with gains of almost 26 per cent or 79.8p to 390p. Market watchers soon drew up a list of potential suitors, with Australia's Macquarie Group leading the speculative roster. The Bank of China was also mentioned, as was GFI, the American interdealer broker which has attempted to merge with Tullett in the past.
Overall, the FTSE 100, up 38.27 points at 5640.57, closed at a new 18-month high, while the FTSE 250 added 90.61 points to 9865.29. Signs of deal activity kept the market on a firm footing, though a large number of ex-dividend stocks, including British American Tobacco, down 71.5p at 2235p, and Admiral, down 19p at 1240p, limited the gains. Kier, down 4p at 1066p, Meggitt, down 1.5p at 290.7p, and the bookmaker William Hill, down 6.9p at 193p, were among the mid caps that went ex-dividend yesterday.
The miners gained ground, with copper prices rising on the back of data showing that, contrary to recent market concerns, China was continuing to gobble up the metal at a stronger than expected pace. The figures boosted Antofagasta, which rose by 14p to 1019p, while Kazakhmys, the target price for which was revised to 1900p from 1400p at Credit Suisse, added 22p to 1545p.
The paper manufacturer Mondi was supported by Bank of America Merrill Lynch, with the stock rising by 16.6p to 456.4p after the broker revised its view to "buy", saying that, despite strong gains in the year to date, the stock continued to offer "plenty of value". "Full-year results came in well ahead of expectations," Merrill said, reiterating its 515p target price. "We are now raising our estimates for the second time since the company reported, based on greater confidence in the demand and pricing outlook for Mondi's key paper and packaging grades."
Great Portland Estates managed to stand firm, adding 1.4p to 300p despite going ex-dividend after JP Morgan reiterated its "overweight" stance in a new sector review. "Neutral"-rated Shaftesbury was less fortunate, easing by 2.2p to 377p, while Songbird Estates, the majority owner of Canary Wharf Group, was 1p behind at 169p despite the broker initiating coverage with an "overweight" view. "Canary Wharf tends to follow the City [of London]," the broker said. "While vacancy is currently high in Canary Wharf at 15.8 per cent ... there are no developments planned and the City office market [already shows] signs of life again."
Development Securities, which was rated "underweight" in the same review, was 3p behind at 276p. While acknowledging the company's "impressive track record in large scale development projects" in the UK, JP Morgan said that, of the stocks it follows, the shares were "currently not the most attractively priced", adding: "New earnings drivers have yet to be identified and while we do anticipate a step up in development profits, this is likely to happen after 2010 and is in our view already largely priced in."