Market Report: City scents a $17bn golden opportunity

 

A deal between the owner of basketball team Brooklyn Nets and two Russian retail and fruit juice tycoons yesterday got the City speculating that a $17bn (£11bn) miner could be created in the wake of the sale.

Russian investor-turned-politician Mikhail Prokhorov, who also owns the US basketball team, has flogged his holding in London-listed Polyus Gold for $3.6bn.

The Russian retail mogul Zelimkhan Mutsoyev and fruit juice boss Gavriil Yushvayev have bought his stake in two separate deals, sparking rumours that Polyus Gold would merge with Russian miner Polymetal International, a member of the FTSE 100.

Precious metals miner Polymetal's shares glistened up 36.5p to 982.5p on the benchmark index – taking the second spot among the risers as City traders hoped a deal could emerge. Polyus, up 1.5p to 220.5p, is listed in London but the company is domiciled in Jersey and therefore is not part of any of the FTSE indices.

If the two metal miners merged it could create a $17bn group. Suleiman Kerimov owns a 40 per cent stake in Polyus and previously owned Polymetal.

The groups are significant operators of Russia's gold mines and analysts think the pair together would be contenders to begin mining some of Russia's as yet untapped gold reserves.

Mr Prokhorov's sale coincides with the falling price of gold.

Traders were hoping overseas deals could be a sign of mergers here. Industrial group Melrose was boosted by news of a US deal yesterday. Private equity firm KKR is buying US industrial machinery maker Gardner Denver in a deal valuing it at close to $3.7bn and Melrose worked up a 5.2p gain to 250.9p.

Deal-hungry traders were following up on fantasy M&A spouted by analyst John Guy at Berenberg. He reckons British luxury brand Burberry could be a target for French luxury giant LVMH. Burberry's shares sashayed up 14p to 1,382p.

Top of the tree on the benchmark index was builder CRH. Barry Dixon at Davy Stockbrokers rated the stock a buy, ahead of their results next week, and the shares built up a 58p gain to 1,394p.

Analysts at Citi took a look at the outsourcing sector and upped their share price targets for a number of stocks. Serco was given a 680p price target and the stock added 20p to 588p.

The security group G4S was suffering at the hands of a downgrade from analysts at HSBC that focused on the wages of its heavies. The security business, which is trying to recover from its Olympic security fiasco, was frog-marched toward the bottom of the FTSE 100 after HSBC scribblers claimed pay for security staff is static. They said "manned security pricing" is very weak in developed markets, and this is a bigger problem for the security outfit than issues in UK public sector work. The shares lost 2.7p to 287.1p.

It was a yo-yo week for London's main index. On Wednesday the benchmark index reached 6,400 in the afternoon session but yesterday shed more than 100 points. Yesterday investors were ready to come back in – cautiously – and the FTSE 100 index rose 44.16 points to 6335.7 on the back of better German data.

Jefferies analysts were taking a bet on mid-cap bookie William Hill. They rate the shares of the betting group a buy with a 500p price target and the shares ended up 3.8p better off at 402.6p. They are anticipating Hill's imminent acquisitions of Sportingbet Australia and the 29 per cent minority stake in William Hill Online currently owned by Playtech which they think will lead to "higher growth rate, greater scope for international/regulated growth and powerful cash generation."

Punters liked the look of small cap gambling group 888 Holdings and were betting on the shares which put on 9.5p to 148.5p.

Over on AIM, Colin Blackbourn, known throughout the City as the Black Prince for his ability to spot small investments, has snapped up 3 per cent of Middle East and Africa-focused Circle Oil. The shares trickled up 1p to 18.12p on the news.

Mediterranean Oil & Gas has had a positive ruling on an environmental test for an Italian asset and the shares rose 1p to 11.62p.

There was good news at a Cameroon oil well for explorer Bowleven which helped the shares up 4.5p to 80.5p.

Jefferies scribblers liked oil explorer Chariot Oil and Gas and upped their rating to buy from hold, with a 50p price target. The shares jetted up 3p to 22.75p.

US-focused Nostra Terra, set to reveal greater than expected production from wells in the Chisholm Trail prospect, saw shares edge up 0.01p to 0.53p.

Buy

Sports Direct

If sportswear were an Olympic discipline, Sports Direct would now be covered in gold. Cantor Fitzgerald is a fan and rates the shares a buy. The broker raises its price target from 440p to 460p (they're 435p now), and says "with newsflow on sales expected to remain positive, we believe it will continue to perform".

Sell

Morgan Sindall

Panmure Gordon is unimpressed with Morgan Sindall and advises we dump its shares. The broker says reaction to the construction group's "full-year results and dividend cut has been severe but we continue to see further downside risk". The shares are 535p but Panmure gives a target of 450p.

Hold

Spectris

Investec is keen on Spectris, which it says is "next stop the FTSE 100". It urged investors to hang on to shares in the precision-instruments business. The broker says despite harsh conditions last year the firm demonstrated "the quality and resilience of its business model". The shares are 2,459p but should be 2,575p.

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