Market Report: Mid-caps step back into the takeover spotlight

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The Independent Online

The blue-chip index may have dipped yesterday, but investors might have a flurry of deals to look forward to in the coming months as analysts predicted that 2011 could be a bumper year for mergers and acquisitions (M&A).

Saying that there is "cash to burn", analysts from Citigroup commented that "everything is in place for the corporate sector to raise debt and spend money" and that it expects "increasing levels of corporate action over the coming 12 to 18 months".

In a similarly bullish mood was Charles Stanley, which – focusing on the FTSE 250 – said that "2011 is shaping up to mirror 2005 and 2006, the last great periods of mid-cap M&A".

Among its key picks were a number of what it believes could be takeover candidates, including Synergy Health. The broker's analyst Franc Gregori described the outsourcer – which was 16.5p weaker at 878.5p – as "an attractive asset for one of the larger support services providers or even private equity".

Go-Ahead was highlighted as another possible bid target, with both SNCF and Stagecoach mentioned as potential suitors. The transport group shot up 92p to 1,408p after it released interim results in which it raised its profit forecasts.

Citigroup was also naming groups it said could attract an approach. One of them was African Barrick Gold at the same time as bid rumours swirled around the yellow metal miner.

The vague gossip was that it could be the target of a potential bid worth as much as 800p a share, with AngloGold Ashanti talked about as one of two companies who are possibly taking a look. ABG ended up taking pole position on the top tier index with a surge of 21p to 571.5p, assisted by strong gold prices.

Overall, the FTSE 100 retreated a meagre 4.39 points to close at 6,082.99 as traders bemoaned the lack of action. Many of the banks were down at the end of a week in which Barclays – 4p lower at 329.55p – kicked off the sector reporting season. Next to update the market are Royal Bank of Scotland, which declined 0.47p to 48.53p, and Lloyds Banking Group, up 0.13p to 69.3p.

BT climbed 0.8p to 185.4p as JP Morgan Cazenove said the telecoms group could benefit from a fall in the number of people switching from using their landlines to their mobiles for calls.

Noting that over the last decade "European wireline has suffered from fixed-mobile substitution", its analysts said that there "are reasons and some early signs why the speed of this substitution could slow".

If this trend does materialise, they added, Vodafone would be one of the companies adversely affected. Yet the mobile group shrugged off these worries to jump up 0.95p to 181.7p, given a helping hand by Royal Bank of Scotland which changed its rating to "hold" from "sell". The ongoing drama over Cairn Energy's attempt to sell its controlling stake in Cairn India to Vedanta Resources took a new twist, as India's oil minister S Jaipal Reddy said David Cameron had written to the Indian government over the wait for approval.

According to Mr Reddy, Mr Cameron said he "wants India to ensure early clearance of the (Cairn-Vedanta) deal".

Mr Reddy dismissed concerns from Cairn – 0.4p higher at 422p – that the deadline for the $9.6bn (£6bn) sale would be missed , saying that the Indian cabinet will look at the case "in a time frame of three weeks".

Elsewhere, Anglo American plummeted 68.5p to 3,227p despite revealing its profits had more than doubled, as China raised its reserve requirements again. It was not the only miner suffering as a result, with Rio Tinto and BHP Billiton – down 101.5p to 4,397p and 53.5p to 2,391p respectively – also near the foot of the table.

It has been a great week for Imagination Technologies, and yesterday was no exception as it increased 33.4p to 430.7p, meaning it has been lifted over 25 per cent in the last four sessions.

JP Morgan Cazenove raised the group's target price to 600p from 435p, saying that its "premium valuation is underpinned by strong earnings momentum driven by ramping royalty volumes" and that it sees "key trends in the mobile and tablet space as supportive of [its] long-term potential".

Also gaining on the second line was Ferrexpo, 12.7p higher at 439.2p, as an update from the US group Cliffs Natural Resources was highlighted as positive news. Cliffs said it sees the price of iron ore continuing to rise in the short term and Morgan Stanley pointed out that its estimates are "similar to what we are expecting, but significantly above current consensus".

Doing less well, however, was Charter International, with the engineering company knocked back 53.5p to 734p following its final results.

On the Alternative Investment Market, Bahamas Petroleum was enjoying its time in the sun as it rocketed up nearly 12p per cent. The group said that preliminary results from two studies show "evidence of 'giant' size structures", prompting it to be bumped up 2.25p to 21.25p.

FTSE 100 Risers

Imperial Tobacco 1,992p (up 67p, 3.48 per cent)

Cigarette company one of a number of defensive stocks to benefit from investors avoiding risk.

InterContinental Hotels 1,435p (up 19p, 1.34 per cent)

Finishes strong week with its third consecutive session of gains.

BP 493p (up 3.65p, 0.75 per cent)

Ahead as TNK-BP says it is interested in joining the energy giant's partnership with Rosneft.

FTSE 100 Fallers

ARM Holdings 620p (down 10p, 1.59 per cent)

Chip maker dips back despite Morgan Stanley keeping its "overweight" advice.

Man Group 304.2p (down 4.8p, 1.55 per cent)

Hedge fund knocked by Espirito Santo Investment Bank reducing its rating to "hold" from "buy".

RSA Insurance 143.2p (down 0.3p, 0.21 per cent)

Edges lower at the end of a week in which bid speculation has re-emerged around the group.

FTSE 250 Risers

Beazley 139.2p (up 4p, 2.96 per cent)

Given a "buy" rating by Deutsche Bank in a large note on the UK specialist non-life insurance sector.

Morgan Crucible 294.2p (up 6.2p, 2.15 per cent)

Engineering company's price target is raised by both Credit Suisse and Arbuthnot.

Micro Focus 293p (up 2p, 0.69 per cent)

Canaccord Genuity reiterates its "buy" recommendation, but reduces its target price to 360p from 442p.

FTSE 250 Fallers

Centamin Egypt 122.2p (down 17.2p, 12.34 per cent)

Workers at its Sukari gold mine stage sit-in, but group says operations not disrupted.

Rentokil Initial 92.5p (down 5.5p, 5.61 per cent)

Multi-tasking group releases preliminary results and does not restart dividends.

Debenhams 62p (down 1.55p, 2.44 per cent)

Falls despite data showing a better-than-expected rebound in retail sales for January.

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