Market Report: Broker re-evaluation makes ITV one to watch

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Positive broker comment and a measure of bid speculation propelled ITV to pole position on the FTSE 100 yesterday.

The broadcaster gained more than 12 per cent, or 4.6p, to 42.9p after Morgan Stanley moved the stock to "equal-weight" from "under-weight", saying that "the recent under performance has gone far enough". The broker added: "The acquisition of BSkyB's 10.4 per cent stake (Court of Appeal decision impending) by a trade or private equity buyer could promote substantial out performance."

The stock was also aided by rumours of possible bid interest from Endemol, the producers of Big Brother, and Mediaset, the Italian broadcaster. House broker UBS remained sceptical and said: "... in our view, Endemol would not be able to finance a bid and Mediaset has dismissed suggestions it is interested in ITV."

Part of the strength in ITV, 7.74 per cent of whose stock is out on loan, according to the latest figures from Data Explorers, was also attributed to the closing of short positions as the share price rose.

Elsewhere, Alliance & Leicester was in focus. The mid-cap bank soared by 52.79 per cent, or 115.75p, to 335p after Banco Santander, Abbey National's Spanish parent, revealed an agreed 299p-per-share takeover proposal. Under the terms of the deal, which will see Alliance & Leicester merge with Abbey, A&L shareholders will receive one Santander share for every three in the UK bank. Traders said the news had caught the market by surprise. "There have been quiet rumblings about this sort of thing around A&L and Bradford & Bingley, especially after the problems at B&B," said one trader. "But this was not on anybody's radar on Friday, when the banks were sold off – it is forcing a lot of short closing, because people have been betting that the share prices will fall."

According to Data Explorers, as of 9 July, 19.32 per cent of A&L stock is out on loan. For Bradford & Bingley, which gained 11.58 per cent, or 5.5p, to 53p, the figure is 17.87 per cent while 13.58 per cent of HBOS, which added 5.5p to close at 272p, is out on loan.

Overall, the FTSE 100 was lodged in bear market territory, up 38.8 points at 5300.4. Losses in the oil & gas sector, where Cairn Energy closed down 53p at 2791p as the price of oil eased, offset the effect of M&A activity elsewhere: beside the offer for Alliance & Leicester and the speculation around ITV, investors were excited by activity around Kazakhmys and Imperial Energy. The benchmark was also held back by a mixed start on Wall Street, where investors took stock of the recent failure of the IndyMac bank and some analysts expressed scepticism about the US Treasury's plans to strengthen liquidity and capital at Fannie Mae and Freddie Mac, the domestic mortgage market giants.

The FTSE 250 was up 106.6 points at 8445.7.

On the FTSE 100, Kazakhmys gained 88p to 1515p after confirming preliminary discussions about a possible combination of its business with a third party, believed to be Metalloinvest, the Russian mining group. Like A&L, traders expressed surprise at the development and said the

Eurasian Natural Resources Corporation (ENRC), was pegged as the most likely predator or merger partner. In any case, market sources added, any deal to take over or merge with Kazakhmys will need the blessing of the government of Kazakhstan, which owns 15 per cent of the company.

By close, ENRC was up 91p at 1228p.

On the downside, Thomson Reuters claimed first place on the loser board, down more than 3 per cent, or 40p, at 1245p. UBS downgraded the stock to "sell" from "neutral", citing the prospect of lower revenues in the company's markets division. The broker also reduced its target price for the stock to 1260p from 1650p. "Amid a deteriorating economic environment, we now assume a 8.5 per cent drop in markets revenues over 2009-11", said UBS.

On the FTSE 250, Imperial Energy, the Commonwealth of Independent States (CIS)-focused oil exploration and production group, gained almost 18 per cent, or 138p, to 910p after confirming an offer approach, believed to be from the Oil & Natural Gas Corporation of India (ONGC). In reaction, Cazenove said that whilst it was too early to know whether ONGC will ultimately make a bid for all or part of Imperial, the news "confirmed that Imperial [was] firmly on the radar of potential predators".

Also on the upside, Aberdeen Asset Management was firm, up 2.25p at 120p, following talk of possible 200p per share bid. The speculation remained vague and bore no details about the likely bidder or the timing of the prospective offer. Among smaller companies, the sports apparel retailer JJB Sports gained 6.58 per cent, or 5p, to 81p thanks to vague bid speculation. No suitor was identified, but the rumours suggested a 120-150p per share proposal may be in offing.

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