Market Report: Best Buy bid banter buoys Carphone and DSG
Tuesday, 22 April 2008
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Carphone Warehouse was the focus of yet more bid speculation yesterday.
Market rumours again mooted the prospect of a 400p-per-share offer from Best Buy, the American consumer electronics retailer, which has been cast as a suitor before. There was also talk that Vodafone was said to be considering a bid for the company. But while Carphone stock touched an intra-day high of 259.25p, up 7.75p, on the back of the talk, analysts remained unconvinced.
"It doesn't make a lot of sense for Vodafone to bid for Carphone Warehouse," said Christian Koefoed-Nielsen, an analyst at Panmure Gordon, "I'm not sure all their competitors would be happy for them to own it, and they would know that."
Mr Koefoed-Nielsen added that Best Buy would be more interested in a broader consumer electronics retailer. "First, I don't think Charles Dunstone [the chief executive] wants to sell. And second, I think Best Buy would rather go after someone like DSG International, not Carphone Warehouse," he said.
Other analysts pointed out if there was any interest from Vodafone, it would likely be limited to the company's broadband business.
Carphone Warehouse closed up 2.75p at 254.25p. Vodafone was down 1.9p at 154.1p and DSG International was up 3p at 68p.
Overall, the FTSE 100 was down 3.5, or just under 0.1 per cent at 6,053. Early losses on Wall Street, where sentiment was hurt by a lower-than-expected profit report from Bank of American, and weakness among UK banks, weighed on the London benchmark. The Bank of England's £50bn asset-swap scheme failed to lift spirits as Royal Bank of Scotland, which closed down 11.5p at 372.5p, confirmed it was considering a rights issue, turning the spotlight on its peers. Barclays fell 17.5p to 478.5p while HBOS lost 18p to 540p.
Among housebuilders, Persimmon was up 11.5p at 699p after Panmure Gordon upgraded the stock in a new sector review. The broker said: "... current valuations factor in significant downgrades and asset writedowns and, therefore, we think a housing market crash is factored in to share prices. As a result, we maintain our target prices; however, we do move Persimmon from 'hold' to 'buy'."
The rest of the sector was a mixed bag as investor sentiment see-sawed between hope for the mortgage market following the Bank of England's move and fear of a sharper-than-expected economic slowdown. Barratt Developments was down 5.5p at 365.25p, Bovis Homes shed 16p at 512.5p and Bellway lost 23p to 790p, but Taylor Wimpey gained 0.75p to 159.75p and Redrow added 2.75p to 292.75p.
On the FTSE 100, HSBC dealt a blow to Hammerson, which slumped by 54p to 1,019p, claiming first place on the loser board, after the broker reduced its target price for the stock to 700p from 765p. In a new review of real estate investment trusts, HSBC said "occupier downturn [is] set to trigger rent falls, further weakness in property prices and to stifle profit, cash and dividend growth". It added: "[A] structural shift in the balance of power to the tenant undermines [the] long-term investment case."
Liberty International, whose target price was cut to 680p from 750p in the review, lost 20p to 1,012p. Land Securities, whose target price was cut to 1,500p from 1,565p, was off 44p to 1,510p.
Thomson Reuters remained weak at 1,550p, off 4p, as UBS set a "neutral" rating for the stock. On the upside, the broker highlighted the resilience of the professional services division and the scope for increased cost savings due to the merger between Reuters and Thomson Corporation. But, on the downside, the outlook was markedly bearish for the markets division. "The markets unit of Thomson Reuters is highly cyclical, and during the last downturn (2001-2004) revenues declined by -3 per cent p.a." the broker said. "Although near-term trading for [the division] has been strong, the impact of investment banking headcount cuts has yet to hit."
Smith & Nephew declined 5p to 642p, even as Merrill Lynch retained the stock in its list of most preferred pan-European healthcare shares. AstraZeneca, on the other hand, was up 16p at 2,100p, despite being added to the broker's list of least preferred pan-European healthcare stocks. "Following the settlement of Nexium litigation with Ranbaxy, the stock trades 10 per cent above our best-case valuation of 1,900p, which assumes a successful conclusion for AZN from ongoing Seroquel and Crestor litigation, which are not risk-free," the broker said.
LogicCMG gained 0.75p to 114.75p as investors awaited the publication of its strategic review, which is due today. "The 'must-do' list has to involve better selling, more joined-up offering and more off-shoring ...," said Panmure Gordon. "We constructed three scenarios looking at the likely outcome from the review. For us the 'no-brainer' is moving (expensive) staff from Europe to offshore locations (India and Philippines)."
