Market Report: Market's slide prompts search for bid targets

Toby Green
Thursday 11 August 2011 00:00 BST
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As a sell-off of the European banks prompted the top-tier index into another major slide, voices in the City were yesterday mulling over which companies were looking vulnerable to a takeover in the wake of the recent market turmoil.

The global sell-off may have helped gold prices to reach record-breaking levels, but – unlike some of the other precious-metal producers – Centamin Egypt has failed to benefit. At the start of the month, the mid-tier miner slashed its production forecast, and since then its share price has lost close to 25 per cent.

The slump prompted Investec to suggest the Egypt-focused group could become an "opportunistic" target for its blue-chip peer Randgold Resources – up 265p to 6,385p – which has been steadily rising since June. Saying a takeover "would appear accretive on all measures", the broker pointed out a number of other reasons that made it likely, including the attractiveness of Centamin's flagship Sukari mine.

However, Investec's analysts also highlighted some flaws in their own plan, pointing out that Randgold is "not known to chase scale for scale's sake". As a result, with traders making dismissive noises over the idea, Centamin managed to gain only 1.9p to 104p.

Scribblers from Evolution Securities were also scouring the market for possible takeover targets, and, noting that the sector had lost 18 per cent in the past week, they picked out a number of oil and gas explorers, including Afren.

It shot forwards 5.4p to 100.1p, while also in their list of companies – described as "oversold but well funded and with resources bases sufficiently attractive to draw in a predator" – were BG, Premier Oil, Cairn Energy and Tullow Oil. However, none of the four closed in the blue, instead dipping 58p to 1,179.5p, 1.4p to 337.9p, 13.7p to 293.9p and 26p to 974p respectively.

With the FTSE 100 spending the morning in positive territory, it looked as if it was heading for a much-needed second consecutive day ahead. Yet those who dared to hope the slump had come to an end were swiftly disabused of that notion, as the top-tier index followed global markets down in the afternoon.

It eventually closed more than 3 per cent, or 157.76 points, behind at 5,007.16, a new 12-month low. The slump – which means the index has now dropped more than 15 per cent in the past 11 days – came after vague chatter spread suggesting France could be about to have its AAA credit rating downgraded, though the major ratings agencies denied the tale.

To add to the pain for the French, the banking giant Société Générale was at one point more than 20 per cent lower amid rumours over its financial position, and although it said the mutterings were false, the sector across Europe was still left depressed.

Barclays, which had pushed up earlier in the day after being added by Citi to the broker's "best ideas" list, was eventually pegged back 15.6p to 163.7p, while Royal Bank of Scotland retreated 1.92p to 24.29p.

At the bell, only eight blue-chip stocks had managed to climb, with the miners also losing all their early gains. "Until the fear goes, the market will not calm down," said one trader, who added that he and his colleagues were "ageing very quickly".

A move forwards of 10p to 184.1p left Standard Life in the gold-medal position as the insurer revealed its profits for the first six months of the year had risen by 44 per cent. Not far behind was Burberry, with the luxury retailer shrugging off the decision by Citigroup to name it as a "least-preferred" stock to power up 41p to 1,302p. The fashion group was helped by reports claiming its rival Hugo Boss may increase its profit margin for 2015 later in the year.

On the FTSE 250, Micro Focus managed to shoot up 13 per cent, or 33p, to 283.7p after the software company revealed trading for the first quarter of the year had been better than expected. The group was also bullish over its turnaround plan and revealed it was still involved in takeover talks, though Evolution Securities warned there was "a very low probability [of] a deal happening".

It looked as if TUI Travel was going to be another stock benefiting from a reassuring update, as the tour operator reached a session high of 181.4p after saying it was still on course to meet its targets for the year despite Thomas Cook (down 1.55p to 51.8p) issuing three profit warnings in the past 12 months; however, a late slump saw TUI finish 3.2p weaker at 164.3p.

Despite the downbeat tone to the session, there was a bit of joy to be found among the more modest stocks as the small-cap index eased forwards 0.28 per cent. Leading it was Interserve, which charged up 31p to 325p after the support-services group saw a 10 per cent jump in its first-half pre-tax profits, while strong interim results also boosted French Connection, as the retailer spurted forwards 6p to 64p.

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