Market Report: JPMorgan waters down Diageo talk

Booze experts at JPMorgan Cazenove poured cold water on rumours around Guinness owner Diageo yesterday. In a note that followed press reports about talks between Diageo and United States whiskey owner Beam, JPMorgan made a series of points questioning the likelihood of any deal.

They said it was worth noting that the story came out "after a period of share price weakness for Beam which has suggested to us that the market had concluded that the chances of a bid for the company had receded".

JPMorgan's analysts think Diageo is too busy doing other deals to get involved in anything else now. Diageo is concluding its deal to buy 53 per cent of India's largest drinks group United Spirits for up to £1.3bn and is also still in negotiations with the Beckmann family, the controlling owner of Mexican tequila brand Jose Cuervo.

JPMorgan also questioned the reasoning behind any bid by Diageo for part of Beam, which owns brands including Jim Beam and Maker's Mark, and said the deal would "not fulfil at least one (if not two) of the criteria that Diageo set out for acquisitions". The scribes retained their underweight rating and a share price target of 1,630p. The market barely reacted to the reports and its shares lifted 8p to 1,886.5p.

The FTSE 100 recovered from early morning falls but investors lacked commitment and trade was at extremely low volumes. Investors became cautious after news at the weekend that Italy's prime minister Mario Monti will resign. Italian bond yields shot up and concerns about Italy's debt problems kept investors subdued. But better news at the weekend from China – industrial production and retail sales figures were better than expected –meant the benchmark index didn't stay in the red for long and it edged up 7.23 points to 5921.63.

Smith & Nephew topped the index after getting a buy recommendation from analysts at Investec Securities, who raised their share price target to 730p. The medical equipment maker's shares lifted 12.5p to 678.5p.

The government's intention to rethink outsourcing policies hit Serco. The group, which runs projects including London's Boris bike scheme, has lost its contract with the National Physical Laboratory. The contract, which it has held for 17 years, will end in March 2014. But Westhouse analyst Michael Donnelly said that although the loss is "clearly a disappointment… with about £60m of annual revenues" and an estimated 1.1 per cent hit on forecasted growth to 2014, he thinks its new contract wins this year mean it is still in a strong position. He rates it an add with a 630p share price target, but the shares lost 1p to 544p.

One bored trader rumoured there could be a bidder interested in oil services group Petrofac but others played down the vague speculation. The shares ended up 20p to 1,706p.

Analysts at Deutsche Bank began coverage of insurer Direct Line, which is expected to enter the FTSE 250 index this week when the FTSE group confirms the quarterly reshuffle. Deutsche gave it a hold rating with a share price target of 220p and said the key risks relate to the uncertainty of the outcome of the competition review into the UK motor insurance industry. The shares reversed 0.75p to 200.25p.

Another notable move expected in the reshuffle is travel group Tui Travel, down 2.3p to 284.2p, which should enter the FTSE 100 index while oil and gas firm Ruspetro, up 2.65p to 86.05p, miner Talvivaara, down 3.1p to 93.6p, and waste group Shanks, off 1.55p to 76.5p, were set to be relegated from the mid-cap index.

Struggling hedge fund giant Man Group was the talk of the town following the news chief Peter Clarke will retire and hand over to chief operating officer Manny Roman. The shares jumped 3.65p to 77.3p.

Imagination Technologies, which designs the graphic microchips for Apple's iPhones and iPads, was forced to up its offer for US patent technology business Mips Technologies. It has offered $80m (£49m), up from its initial $60m offer, after US mobile chip designer CEVA made a rival $75m bid last month. Imagination's shares dived 8.8p to 429.3p.

AIM-listed tiddler Berkeley Mineral Resources will today confirm the appointment of Macedonia-based Ascot Group to project manage a metals plant in Zambia. Its shares closed off 0.05p to 2.25p.

Buy: HOGG ROBINSON

Buy up shares in corporate travel services group Hogg Robinson, scribes at Canaccord Genuity recommend. They think news of consolidation in the industry – last week travel management company ATPI was bought by Intermediate Capital Group – is good news for the Hogg Robinson. Canaccord gave the shares, which are currently 52p, a 90p price target.

Sell: BSKYB

Switch off plans to buy shares in broadcaster BSkyB, Berenberg Bank analysts urge. Berenberg's Sarah Simon rates the shares a sell, and gives them a target share price of 630p because competition in the pay TV market will hit the group next year. The shares stood at 763.5p.

Hold: GREGGS

Hold on to shares in pasty maker Greggs, Shore Capital's analysts insist. There was "surprise and disappointment" that chief executive Ken McMeikan is resigning to join Brake Group and Shore downgraded the stock from buy to hold as they regard his departure as the "loss of the architect behind the modernisation of Greggs". They say hold – with a price target of 485p – until "his replacement is known, understood and the on-going direction of the company is outlined." The shares are currently 472.5p.

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