Market Report: Legal & General benefits from regulatory changes
Friday 08 July 2011
The insurer Legal & General surged up the blue-chip index last night on claims that it will be the "clearest winner" from regulatory changes to the insurance industry, as vague bid mutterings around the company also made a return.
The life insurer has frequently been talked about as a potential takeover target, and yesterday the speculation was once again given an airing. Traders, however, dismissed the chatter, attributing its shift of 2.7p to 123.7p to bullish comments from analysts instead.
Examining the potential consequences of the Financial Services Authority's Retail Distribution Review (RDR), which will lead to a ban on insurers paying commission to independent advisers, Nomura said it would bring "profound change" to the life insurance industry and "encourage a shift away from life insurance savings products towards asset management products".
"We believe that L&G is the clearest RDR 'winner'," added the broker's analysts, highlighting its low exposure to life insurance products. Meanwhile, they said Resolution – which slipped back 6.7p to 293.3p – was the most "vulnerable" to the measures, which are due to be introduced next year; the analysts cut the insurance buyout vehicle's rating to "reduce".
Overall, the FTSE 100 shrugged off its first fall in nine sessions on Wednesday by advancing 51.63 points to 6,054.55, with strong US jobs data raising hopes ahead of today's key non-farm payroll figures from the country. However, market voices said a strong reading already seemed to be priced in and warned that the release could prompt a pullback.
GKN closed 7.6p better off at 245p after revived takeover chatter claimed SAIC, China's largest car-maker, could be interested in making an approach. With market gossips suggesting a possible bid of between 350p and 400p, Guardian Stockbrokers' Atif Latif said the automotive and defence parts supplier's "strong growth metrics may make it attractive to a suitor".
Meanwhile, bid talk continued to swirl around Yule Catto on the mid-tier index, and the chemicals company climbed 9.8p to 253p, meaning it has added more than 15 per cent in the last seven sessions.
Back on the top-tier index, Man Group rose 8.8p to 255.7p as the world's largest listed hedge fund company beat expectations with its first-quarter numbers. At the opposite end Hammerson retreated 23.1p to 463.7p after its largest shareholders, Canada's Cadillac Fairview, disposed of its 85.6m shares in the property group.
The most extreme move among Britain's largest 350 quoted companies came from Premier Farnell, as the electronic parts distributor lost over a fifth of its value, dropping 49.1p to 195p on the FTSE 250. The group's profit warning, in which it said it expected to miss expectations for the second quarter, also hit its peer Electrocomponents, which was knocked back 19.9p to 254.6p.
Dunelm, however, fared rather better after updating the market, taking the top spot by powering up 45p to 450.5p. The homewares retailer announced that sales in the last quarter of the year had jumped nearly 2 per cent, prompting Andrew Wade of Numis Securities to change his advice to "buy" from "add".
There was a bounce of 1.4p to 56.4p for Kenmare Resources after the minerals producer shed more than 8 per cent on Wednesday. That sell-off followed reports that Mozambique is planning to change its mining law, but Jeremy Dibb of Canaccord Genuity said the proposals were likely to have "little impact" on the group and kept his "buy" recommendation.
Punch Taverns was looking rather unsteady on its feet, with the pubs group losing 0.65p to 73.35p after announcing the timetable for its planned spin-off of its managed pubs business. The company's Spirit division will become an independent public company at the start of next month, and Peel Hunt's Paul Hickman said it looked "like a sensible prospect with work under way on improving the estate and growing margin".
The analyst also addressed speculation that Spirit may become a potential bid target, saying that while "possible acquirers could include Mitchells & Butlers and Greene King... we believe both would need to raise equity to fund a transaction".
Invensys pushed forwards after revealing it had won a contract to provide key work on the Thameslink project. Singer Capital described it as "one of the largest ever resignalling schemes in Britain", adding that it "should reassure investors as to the outlook for [Invensys'] rail division", and the company was bumped up 5.1p to 333.9p.
Down on the small-cap index, 888 eased up 1p to 35.5p following the reheated bid talk, with vague chatter saying the gambling group – which had been in talks earlier in the year with Ladbrokes, down 1.7p to 153.5p – could receive an offer worth 62p a pop.
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