Market Report: Bid talk washes round water giants

  • @LauraHChesters

As the rain poured down yesterday, traders sloshed about in old takeover bid rumours about water companies, which promptly launched Severn Trent and United Utilities to the top of the FTSE 100.

Severn Trent was targeted by the Canadian-led LongRiver consortium earlier this year but rejected the approach and the Canadian and Kuwaiti investors walked. Regulations mean they can't come back for a while, but that didn't stop hopeful traders speculating that this consortium may be looking at United Utilities. Others thought a completely new player could now be taking a look at the sector. Although only a vague rumour and no new names were mentioned, United surged 15.5p to 703p and took the top spot on the blue chip index and Severn Trent flowed ahead 34p to 1,792p.

Other less fanciful comments from traders reasoned that the water companies were popular yesterday because they offered cautious investors a safe-haven when the rest of the market remained weak.

The FTSE 100 lost 52.69 points to 6,570.17 as investors remained nervous ahead of the ahead of the Federal Open Market Committee statement tonight.

The Government's sale of a 6 per cent stake in Lloyds Banking Group saw the bailed-out bank languishing towards the bottom of the blue chip index, 2.71p worse off at 74.65p. But Aggreko, 69p off at 1,580p, took the wooden spoon after the temporary energy provider was downgraded by analysts at Credit Suisse to underperform. The Swiss bank is concerned about the number of lucrative hire contracts that will soon come to an end for the business.

Rising gold prices benefited precious metal miners, with African-focused Randgold Resources 59p better at 4,545p. But the commodities trader and mining giant Glencore Xstrata fell 7.7p to 334.2p after it was downgraded by UBS.

The engineerer Smiths Group ticked up 3p to 1,376p after an upbeat note from Jefferies ahead of today's full-year results.

Square-eyed scribblers at Liberum Capital said broadcaster ITV is worth a look. Liberum was keen on the potential for retransmission of shows on other channels or in other countries. It said it could be the next "big opportunity" given its success with Downton Abbey and Broadchurch. But ITV has yet to convince investors and it slipped 1.1p to 181p.

Mid-tier metal flow engineer Vesuvius declined 22.6p to 464.2p after Morgan Stanley's analysts decided to downgrade it to underweight. Smartphone chip technology specialist Imagination Technology was a victim of profit taking and dipped 9.4p to 334.6p.

Over on AIM it was the turn of fashion followers at Morgan Stanley to turn negative on online fashion specialist Asos. Morgan Stanley's retail team admitted that it remained a fan of the group and said "nothing has shaken our confidence in the long-term story … we anticipate the company issuing a strong trading update later this week (with sales likely to be up more than 40 per cent year on year)."

But, it is very concerned about its valuation. The shares are up 158 per cent over the last 12 months, Morgan Stanley could not find a way to justify the valuation: "We have tried 10 different ways to justify the current share price but none seems plausible." Other analysts have rated the group a sell before and then had to change this amid red faces as the stock continued to grow. Morgan Stanley's retail experts said: "We are acutely aware of the drawbacks of turning negative on a hyper-growth stock in the middle of a bull market. We have, therefore, looked for ways to justify raising our price target. However none of the 10 approaches we tried stood up to much scrutiny." So the team was forced to downgrade it to underweight. But they raised their target price to 4,000p and Asos slipped 482p to 4,880p.

The gold and platinum producer Pan African Resources shone 1.75p brighter at 15.5p after a strong set of full-year results, with revenues up by 32 per cent.

Software specialist K3 Business Technology Group said that retailers are returning to spending on technology and its final results yesterday pointed to an uplift in sales in the fourth quarter. It was 10p stronger at 139.5p.

Maritime and offshore waste specialist Nature Group reported improved half year sales and profits and advanced 3.5p to 40.5p.