Market Report: Man under pressure amid dividend fears

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Payout worries haunted Man, the hedge fund group, which fell as the benchmark FTSE 100 index firmed up last night.

The stock lost 9p to 237.3p after Morgan Stanley highlighted risks to the dividend. With next year's earnings likely to remain subdued on below average performance fees and a lack of steam in sales, the payout looks set to be rebased, the broker said, pencilling in a cut of around 45 per cent to 25 US cents per share in 2011. Morgan Stanley, which has an "equal-weight" stance with a 260p target price on the stock, expects Man will keep the dividend unchanged at 44c for 2010, though it notes that clarity on the payout is unlikely before the hedge fund group's board meeting in May.

That said, given that Man is sitting on $1.5bn of surplus capital, special dividends or buybacks may be forthcoming if the company does not seek stakes in other managers. And though the latter course fits with management's appetite for a minority holding in an equity long/short manager, the broker said it may prove difficult, wondering whether an established and reputable manager will feel the need for the group's distribution capabilities. Numis also weighed in, revising its view on Man to "add" from "buy" on account of the near-term risk to assets under management. "Whilst we remain positive over the medium term we would not advocate buying aggressively ahead of the pre-close trading update next week," the broker said, revising its target price for the stock to 285p, compared to 300p previously.

Overall, the FTSE 100 swung to a session high of 5,657.77 – its best showing in 21 months – before closing at 5,644.63, up 24.2 points, while the FTSE 250 rose about the 10,000-point mark, adding 78.46 points to 10,008.5 amid thin volumes. Overnight news from the US Federal Reserve, which put fears of monetary tightening to rest by keeping interest rates near zero, cheered traders, as did the latest UK unemployment figures, with a surprise drop in the number of Britons claiming jobless benefits in February. Deutsche Bank's economist George Buckley said the data "confirms that the labour market has done better in this recession that we thought it would".

The speculators, emboldened by the buoyant mood, were on the prowl again. They received a boost in early trading when Arriva, the transport group which was the subject of bid rumours earlier this week, said it had received an approach. The company, which saw its shares rally by almost 17 per cent or 97.5p to 677p, did not identify the suitor, but the smart money was on Germany's Deutsche Bahn. Arriva's admission lifted the wider sector, with Firstgroup up 10.9p to 379.5p and Stagecoach up 5.9p to 187.1p.

The oil services group Wellstream was once again mentioned as a possible target for an oil major or a bigger players in the same sub-sector. Italy's Saipem, which has been mooted as possible bidder in the past, was rumoured to be interested, with Wellstream adding 17p to 542p on the chatter. Drax, down 0.7p at 376.8p, was also the focus of renewed deal talk, with market rumours suggesting the possibility of interest from Centrica, the British Gas owner, which rose by 0.7p to 296.1p, or a European peer.

Elsewhere, bid chatter was in evidence around Aveva, the engineering software firm, which gained 41p to 1,190p. Besides the rumours, the stock was also supported by Evolution Securities, which switched its stance to "buy" on opportunities linked to the key Aveva client Petrobras in Brazil. "The Santos basin opportunity has created a significant new addressable market of licence revenue, and a boost to the marine business," the broker said, revising its target price to 1482p.

Over in the mining sector, recovery hopes, coupled with relief at the Fed's stance on interest rates, drove sentiment around BHP Billiton, up 34.5p at 2,220p, and Rio Tinto, up 65p at 3767p. The optimism offset the impact of cautious comment from Société Générale, which switched its view on the two to "hold". Antofagasta, which was cut to "sell" by the same broker, rose 9p to 1,030p. In the wider sector, Fresnillo added 28p to 854p, Kazakhmys was 36p stronger at 1,532p, and Lonmin rose to 2,016p, up 35p.

On the downside, the retail bellwether Marks & Spencer lost 8.2p to 353.9p after JP Morgan turned negative, saying it expected M&S to lag behind the sector. Revising its view to "underweight" from "neutral", the broker argued that the stock was likely to struggle against the backdrop of failing momentum in consensus forecasts, while at the same time it expected "the pattern of trading to expose the gravity of the strategic issues facing the food business".

Further afield, the FTSE 250-listed publishing and events group United Business Media was 13.5p higher at 534p following a push from Deutsche Bank, which said the company was well placed to exploit the upturn. "Coming out of the 2003 slump, UBM had to contend with a sea-anchor of print technology ad revenues. Time and portfolio action makes this a much smaller issue from 2009," the broker said, upping the stock to "buy" with a revised 650p target price, compared with 500p previously.