Market Report: InterContinental gains on talk of industry shakeout

Is the hotel industry set for a round of takeover fever? That was the speculation in the City yesterday as InterContinental Hotels found itself picked out as a potential target. The Holiday Inn owner was in the M&A spotlight after Numis Securities' Wyn Ellis floated the idea of the blue-chip group getting snapped up by the US giant Marriott International.

Claiming "consolidation [in the sector] is inevitable at some stage", Mr Ellis said that although it "could involve any of the big players", InterContinental looked particularly attractive because of the discount its shares traded at compared with its rivals across the Atlantic.

Marriott, he argued, was the most likely in the industry to go shopping, and he went on to say that the case for it making a tilt for InterContinental was "compelling".

"A merger would create a dominant player in the global hotel market," he added, pointing out that one appeal for Marriott would the chance to raise its exposure to China.

The Numis analyst said InterContinental's takeover potential was one reason why it was among his top picks, and the group powered up 33p to 1,465p.

The FTSE 100 stretched its winning run to a fourth session, pushing up 34.8 points to 5,391.14. Miners – including Kazakhmys (20p better off at 710.5p) and Rio Tinto (up 64.5p to 2,922p) – were among the risers even though early speculation that the Chinese government may be about to try to boost the country's economy was played down.

Having dropped on Monday on fears the struggling Spanish bank Bankia may get rid of its 12 per cent stake, the airlines group IAG flew up 5.6p to 142.7p. UBS believes investors should look on the bright side, with the broker saying possible buyers of the stake in the owner of British Airways "may be a positive catalyst".

Tesco continued to fall from favour. The supermarket was knocked back 3.5p to 301p – its lowest since 2008 – despite Société Générale continuing to recommend it as one of a number of stocks that should outperform if the eurozone starts to break up.

Shares in Greggs were selling like hot sausage rolls following Chancellor George Osborne's U-turn on the pasty tax. The high street baker – which had lost more than 14 per cent since the tax change was announced in the March Budget – advanced 37.9p to 504.5p as both Canaccord Genuity's Wayne Brown and Shore Capital's Clive Butler turned buyers on the news, with the former saying the climbdown removes "significant financial and strategic risk".

Meanwhile, Mr Black said the company's "national profile has been markedly enhanced, an enhancement that would cost a small fortune in marketing terms".

Elsewhere on the FTSE 250, Essar Energy spurted up 7.3p to 116.3p. Bank of America Merrill Lynch decided to keep the oil explorer on its "most preferred" list of stocks in the sector, with the broker continuing to expect the stock to more than double, having a price target on it of 265p.

Punters eagerly awaiting news from Ithaca Energy on potential takeover talks were not pleased when it finally came. The North Sea-focused driller revealed that discussions had ended and that the approaches put forward were inadequate, prompting the shares to plummet 54.25p or 30.82 per cent to 121.75p and leaving a lot of burnt fingers.

Gulf Keystone Petroleum moved 11.75p higher to 206.75p despite tests at its Ber Bahr 1 well – which is operated by Genel Energy (0.5p lower at 639.5p) – failing to determine whether it is commercially viable or not.

Meanwhile, traders noted vague speculation around Rockhopper (up 9p to 297.5p) suggesting that an update on the Falkland Islands-focused driller's search for a farm-out partner could be nearing.

Beowulf Mining climbed 0.38p to 13.5p after it announced that drilling had restarted on the northern section of its Kallak site in Sweden, where it has been involved in a dispute with the local Sami community. Ray Winstone, who played the Norse warrior in a 2007 film of the same name – is a shareholder in the tiddler.

Elsewhere, ValiRx raced up 0.16p to 0.54p, a jump of nearly 40 per cent for the penny stock, after it announced positive results from studies involving its VAL201 prostate cancer drug.