Market Report: Cold water poured on Pennon bid talk

  • @greentoby

Bullish comments from "Super Mario" may have seen the Footsie gush higher yesterday, but not everyone managed to stay afloat. Pennon was one of the nine blue-chip stocks to finish in the red after a bucket of cold water was poured over the utility's takeover hopes.

With Hong Kong billionaire Li Ka-shing's purchase of Northumbrian Water last year leaving just three major independent water companies, many have speculated there could be further bid activity ahead in the sector.

Pennon has been one of the groups suggested as a possible target, but yesterday Credit Suisse played down the likelihood of major takeovers. Saying that while affluent sovereign wealth funds are likely to snap up unlisted companies, analysts from the broker warned they did "not expect appetite for large-scale, hostile buy-outs".

They went on to add that if "a buyout were to take place we would view Severn Trent as the most likely candidate", as the group ticked up 19p to 1,713p. However, Pennon was left 9p weaker at 754.5p, with the scribblers also downgrading their advice on the stock by two notches from "outperform" to "underperform".

In addition, the scribblers cut their advice on United Utilities to "underperform" – although it still advanced 13p to 701.5p – and claimed there was a "murky outlook" for the sector with major regulatory changes likely.

Actions may speak louder than words, but that didn't stop the FTSE 100 shooting up after bullish comments from Mario Draghi regarding the eurozone crisis. It was on course for a fifth losing session in a row before the European Central Bank (ECB) president told a conference in London that the bank would "do whatever it takes to preserve the euro. And believe me, it will be enough".

With his comments being seen by some as a sign the ECB may restart its bond-buying programme, stocks in Europe and the US jumped higher as the benchmark index closed 74.84 points stronger at 5,573.16.

Still, one didn't have to look far for cautious voices, with analysts at Citigroup announcing they now believed the likelihood of a Greek exit from the eurozone within 12 to 18 months was a whopping 90 per cent.

Saying they feel it is most likely to happen in six to nine months, the scribblers added that they expected both Italy and Spain to receive "some form of" formal bailout and warned that the UK could lose its triple-A sovereign debt rating in two to three years.

With plenty of companies releasing results, Rolls-Royce was one of the most impressive. The engineering giant flew up 55.5p to 885p after revealing a 7 per cent jump in its first-half profits following an increase in demand from airlines for fuel-efficient planes, while bosses said the issue with its engines that saw Japan's All Nippon Airways recently ground five planes would not have a significant financial impact.

The gold medal slot was taken by Polymetal International. The Russian gold and silver miner soared 62p higher to 873.5p after HSBC's scribblers kept their "overweight" advice, although the company has still lost 7 per cent in little more than a month.

On the FTSE 250, Drax was attempting a recovery of sorts, although its climb of 27p to 469p was nowhere near enough to recover the 15 per cent which it lost on Wednesday in reaction to the Government's green energy subsidy proposals. This was despite Liberum Capital saying it still believes the power station operator may become a takeover target, suggesting it "could see an approach from a vertically integrated player once there is fuller clarity".

There was no let-up for Lamprell. The oil rig-maker announced its third profits warning in three months while warning it was trying to get some of its banking covenants waived, all of which knocked the small-cap stock back 38.5p to 84.75p, meaning it has shed more than 75 per cent since May.

The Aga is coming to China. Aga Rangemaster, the maker of the middle-classes' favourite oven, revealed it had signed a tie-up with Chinese appliance manufacturer Vatti that will see the two companies distribute each other's goods. Espirito Santo's Sanjay Vidyarthi said the deal was "a further demonstration of the strength and desirability of the Aga product and brand", although this didn't stop the group closing 3.25p lower at 68.25p.