Market Report: Bid hopes offset rating worries around Misys
Friday 10 June 2011
Misys remained in focus as bid rumours continued to swirl round its shares last night, edging up despite warnings that the speculative rally could harm the prospects for any deal.
The software group was 2.1p higher at 390.1p, up more than 20 per cent since the start of May, and more than 10 per cent ahead of the levels seen at the beginning of June.
The latest uptick came despite Numis's analyst David Toms warning last night that the recent spate of bid talk had "driven the shares to a level where we believe that any bidder would struggle to pay a significant premium". "The performance of Misys's shares is in the 'somebody knows something' category," he observed, noting that the gains had moved the valuation close to those commanded by shares in "vastly better businesses" such as Fidessa or Autonomy.
"Misys now trades at a significant premium to peers such as Temenos and Fiserv and, in our view, such a rating is well ahead of the value of a company that is struggling to deliver 5 per cent growth," he said.
"Misys has performed well as a trader of assets and we think it would be dangerous to bet against this performance continuing. However, as an operating entity we think the jury remains out. Absent a takeover, we think the shares look overvalued."
Overall, the wider market moved up as traders went on the hunt for bargains after Wednesday's falls. As a result, the FTSE 100 ended 47.45 points higher at 5,856.3, while the mid-cap FTSE 250 index closed at 11,911.6, up 40.7 points. There was little excitement from the Bank of England, which decided against changing interest rates, or tweaking the terms of its quantitative easing programme.
On the Continent, the European Central Bank, which has already moved euro area rates off the record lows seen during the crisis, signalled the possibly of another rise next month – and though signs of monetary tightening have rattled traders in the past, the bargain hunting trend keep the London market on track.
Consumer-related stocks were hit by an update from Argos's owner Home Retail Group. The company, down more than 13 per cent or 27.8p at 174.5p, reported slumping sales, particularly at Argos, and sullied the mood across the wider retail sector.
The result was that worries about a deep and prolonged consumer slowdown weighed on the likes of Dixons, which 1.72p lighter at 17.58p, and Kesa Electricals, which fell by more than 4 per cent before paring loses to end broadly flat at 143.4p, up 0.7p. The wider sector was also unsettled, with Marks & Spencer losing 3.4p to 367.8p, and the high street fashion chain Next closing at 2,254p, down 4p.
The miners went the other way, recovering some of the ground lost on Wednesday when commodity prices fell. Although key metals such as copper continued to show weakness, equities were aided by bargain hunting. Antofagasta, which was among the weakest of the blue chips on Wednesday, was among the strongest, with gains of 30p to 1,256p. Anglo American at 2,988.5p, up 64p, and Xstrata at 1,365p, up 20.5p, were also higher.
On the downside, the technology group Smiths was 16p behind at 1,161p following some negative broker sentiment. Evolution Securities did the damage, initiating coverage with a "reduce" view. The broker said the company's recent update confirmed "that growth is dependant on [the] timing of contracts".
"Self-help has moved margins to new levels but top line growth is pedestrian," Evolution noted, adding: "Smiths currently trades in line with our sum of the parts valuation but we believe the lack of growth and the diversified nature of the business argue for a conglomerate discount."
Elsewhere, the UK-focused parts of the banking sector were under pressure. State-backed peers Lloyds and Royal Bank of Scotland – both of which announced job cuts yesterday – were 0.86p behind at 47.81p and 0.3p lower at 41.06p respectively. Less UK-focused Standard Chartered, up 6.5p at 1,566.5p, and HSBC, up 5.1p at 621.7p, fared better, however, and managed to close in the black.
Domino's Pizza UK & Ireland was held back last night, easing by 2.9p to 392.1p, after Panmure Gordon scaled back its target for the fast food group's stock to 345p from 350p, citing the impact of start-up losses in Germany following the group's recent announcement about expanding its presence in the country.
"We have written previously that Germany is already a competitive pizza market, that the 400 store target in 10 years appears ambitious, that Domino's stores were present in Germany until the late 1990s until they closed, and that this expansion may provide management distraction and introduces significantly higher execution risk to the rollout story," the broker said, repeating its "sell" recommendation on the stock
"We have seen or heard nothing since then to change our view."
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