Market Report: Burberry's bid potential talked up once again

Perennially talked about as a possible bid target, Burberry once again found its takeover potential under discussion yesterday as the upmarket clothing retailer shot up the blue-chip index.

The group has seen its share price take a knock in recent weeks, thanks to fears over its exposure to Japan – it lost nearly 8 per cent in just four sessions after the earthquake and tsunami hit the country – but last night it closed 31p better off at 1,147p.

Exane BNP Paribas assisted the luxury brand by adding it to its merger and acquisition target list, replacing the Italian watchmaker Bulgari, which LVMH agreed to buy earlier in the month in a deal worth £3.2bn.

"With a 100 per cent free float, Burberry is the only luxury goods stock without a family as a majority shareholder," said the broker's analyst David Finch, who added that "the recent corporate activity within the space, and the increasing amount of cash in the industry" means the rumours surrounding it are likely to continue.

Pointing out that Burberry – which, it was revealed over the weekend, has signed a deal to sell its products in Saudi Arabia – is "working hard to shift its price and mix upwards", Mr Finch said that although "the company is making good progress, this process is far from over and we would expect that it could be optimised and accelerated within the context of a larger group".

Overall the FTSE 100 edged up just 3.73 points to 5,904.49, as the miners endured a tough session. Randgold Resources – down 98p to 4,638p – and Kazakhmys – down 22p to 1,425p – were among those left weaker by a fall in metal prices

Also affected was Aquarius Platinum on the FTSE 250, retreating 25.7p to 344.3p. The group announced late on Friday that it is in talks with the government of Zimbabwe, where it operates, about plans to force companies operating there to be at least 51 per cent owned by the country's citizens.

Legislation was passed in 2007, and last week officials revealed details of its implementation. "While this may be all old news in many ways, it once again brings into focus the very real political risk in Zimbabwe," Panmure Gordon's Alison Turner said.

Back on the top-tier index, Arm Holdings was quiet for most of the day, but it shot up when markets over the Atlantic opened, eventually finishing near the summit with a rise of 13.5p to 558.5p.

Takeover speculation has had a large role in its recent advances, but traders yesterday pointed instead to the decision by the influential US financial publication Barron's to include its boss Warren East in its annual round-up of the world's top 30 CEOs.

Noting that this puts Mr East "in the company of Warren Buffet and Steve Jobs", Aviate's Neil Campling added that if the group "maintains its current multiple ... then [it] should move beyond 1,000p and towards 1,500p over time", advising that the chip maker "should sit at the core (pun intended) of any global equity growth portfolio".

Meanwhile, market voices also said Arm was helped by the apparent high demand for Apple's iPad 2, which features its technology, after its release in the UK last week.

The likelihood of an imminent break-up may be "receding", according to HSBC, but Smiths still managed to tick up 7p to 1,324p. Talk that such a move could be close was helped last January by the engineering group rejecting a £2.45bn offer for its medical services unit, but the broker said a number of reasons – including the company's pension deficit – means they remain "unconvinced" by the prospect.

However, its analysts did add that they expect its share price to "move sharply in reaction to merger and acquisition speculation, even if we feel Smiths is unlikely to accept bids at present".

Also rising, despite bid speculation being played down, was Micro Focus on the mid-tier index. Another favourite of the market gossips, yesterday the software group was lifted 6.1p to 314.7p by its announcement of a share buyback programme worth up to £60m.

The chances of it receiving a bid were knocked as a result, with Numis Securities saying the move "indicates that the company is not in active discussions", and Micro Focus clarified it was "not in possession of any unpublished price sensitive information".

Another gainer was Exillon Energy, 8.4p higher at 405.1p, after revealing it had found more oil at its field in Siberia. The index's biggest increase, however, came from Lamprell, with the group – which upgrades and refurbishes oil and gas rigs – 17p stronger at 331p after booking profits in 2010 more than 130 per cent higher than the year before.

On the Alternative Investment Market, Allergy Therapeutics was in top condition as the penny stock climbed 0.88p to 7.75p. The pharmaceutical group released first-half figures which showed a modest improvement in its pre-tax profit, but the better news came from the fact that the Food and Drug Administration in the US has given it the green light to continue with the development of its pollen allergy drug.

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