Market Report: Bid talk and profit hopes see Centrica charge up

Bullish comments on its profitability, coupled with continuing speculation of a takeover bid, helped Centrica power its way up the blue-chip index last night.

The owner of British Gas put on 10.8p to finish at 344.6p as Credit Suisse reiterated its "outperform" recommendation on the company, raising its price target to 380p from 340p.

Describing the group as its "preferred UK energy utility", the broker said a major driving force behind Centrica's success was that although gas and oil prices remain high, residential margins for energy supply are likely to stay strong as well.

Centrica benefits from both of these gains, its analysts said, "yet we do not see this reflected in the stock given its recent underperformance".

They pointed out that its share price has failed to enjoy the same rises as the top-tier and MSCI European Utilities indices.

Traders also highlighted persistent rumours that Centrica could be the target of a takeover attempt, as vague gossip re-emerged that once again mentioned the Russian energy giant Gazprom as a potential bidder.

Meanwhile, its peers in the energy sector were looking good as well, with BG Group – another company often talked about as a possible bid target – and International Power climbing 51.5p to 1,524p and 11.2p to 339.4p respectively.

Despite touching a low of 5,973.51 points during early trading, the FTSE 100 enjoyed a late rally to close 42.89 up at 6,062.9 – helped by the news of President Hosni Mubarak's resignation – while the FTSE 250 was lifted 76.17p to 11,797.77p.

The most dramatic move among the biggest 350 companies on the London market came from Ocado, which plummeted 30p to 255p, a decline of more than 10 per cent.

The online grocer has had a strong recent run, doubling its price since last October thanks in part to speculation it could be a bid target. Yesterday, however, a large chunk of this was wiped out after John Lewis's pension fund sold its 10.4 per cent stake in the group.

Investors were worried not only by the departure of one of Ocado's main backers, but also by fears that competition could now be increased between the company and John Lewis's Waitrose business, although Ocado clarified that the commercial deal between the two will not change.

John Lewis was also having an effect on the high street retailers, following the release of its latest weekly sales figures. The department store announced a small year-on-year increase in store trading of just over1 per cent, with Arden Partners' analyst Nick Bubb warning that "we can be sure that life will be much tougher elsewhere on the high street".

The market certainly took it that way, and with sentiment around the fashion groups damaged by the recent rise in cotton prices, Next finished 63p weaker at 2,000p while Marks & Spencer dropped 3.6p to 368p.

Barclays begins the banks' reporting season on Tuesday with its full-year results, and yesterday it shed 2.15p to close at 311.1p after Evolution Securities moved it back into its "core sell" category.

The broker's analyst Arturo De Frias said that although Project Merlin – the agreement between the banks and the Government – was largely good news for the sector, the "next obstacle ... will be capital [and] we feel this will be more difficult to negotiate."

He added that Barclays seems the "worst placed" to reach a core tier 1 capital ratio of 10 per cent, which he thinks will be the minimum set by regulators.

Meanwhile, Anglo American rose 113p to 3,421.5p following the announcement from De Beers – of which it owns almost half – that it had managed to post a profit for last year, after a $220m net loss in 2009.

The prospect of Premier Foods making further disposals was raised by Panmure Gordon yesterday, as the group edged back 0.22p to 22p. The company has already announced deals this year to sell its Quorn and canning units, but the broker suggested it should consider selling its Avana Bakeries and RF Brookes businesses as well, picking out Greencore as a potential buyer.

Carillion edged up 10.1p to 395.3p after the support services company agreed a £307m deal to purchase Eaga. The deal values the small-cap group at 120p a share, prompting it to surge forwards 28.75p to 120.75p.

Elsewhere, the news that Babcock International had won a €300m (£253m) contract with the MoD – together with raised hopes that it is about to start a disposal programme – saw the defence services group 10p better off at 571p.

Among the small-cap groups, Renovo's share price was left in tatters as it lost over 75 per cent of its value, retreating 51.5p to 17p. The biotech company revealed that its Juvista scar-reduction drug had failed a late-stage clinical trial, and that the board was now considering the next step.

FTSE 100 Risers

Legal & General 122.7p (up 3.9p, 3.28 per cent)

Nomura says market is "underestimating the growth potential of [its] asset management operations".

SABMiller 2,144p (up 58.5p, 2.81 per cent)

Brewer gains as Royal Bank of Scotland increases its advice to "buy" from "hold".

Rio Tinto 4,623.5p (up 74.5p, 1.64 per cent)

Copper miner benefits from Citigroup increasing its target price to 5,000p from 4,200p.

FTSE 100 Fallers

Intercontinental Hotels 1,374p (down 15p, 1.08 per cent)

One of the day's major fallers despite Barclays upping its rating to "overweight".

International Consolidated Airlines 249p (down 2p, 0.8 per cent)

Bad run means it has now fallen nearly eight per cent in three sessions.

Autonomy 1,600p (down 7p, 0.44 per cent)

Edges down as investors indulge in profit-taking following Thursday's big gain.

FTSE 250 Risers

Centamin Egypt 149p (up 9p, 6.43 per cent)

Sees large gains in final stages of session as President Mubarak resigns.

Fidessa 1,700p (up 65p, 3.98 per cent)

Positive sentiment from investors move it forwards ahead of Monday's annual results.

Homeserve 462p (up 10.7p, 2.37 per cent)

Releases interim management statement in which it says it is on track to meet market predictions.

FTSE 250 Fallers

Domino's Pizza 523.5p (down 14p, 2.6 per cent)

Finishes the session weaker in lead-up to Tuesday's preliminary results.

Rentokil Initial 100.4p (down 1.5p, 1.47 per cent)

Drops as Deutsche Bank reduces its recommendation to "hold" from "buy".

Mitchells & Butlers 338.4p (down 2.5p, 0.73 per cent)

Announces appointment of Simon Burke as a non-executive chairman.

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