Market Report: Miners, led by Xstrata, help get the FTSE flying
Judging by the comments of some in the Square Mile, a tie-up between Xstrata and Glencore appears to be virtually inevitable. Yet not everyone is convinced a merger is imminent, including Nomura which yesterday claimed Xstrata was more likely to be on the lookout for acquisitions itself than be taken over.
Despite constant talk over a possible deal between the two, scribblers from the Japanese broker argued that there was a better chance of the Swiss miner becoming "a predator [rather] than prey". They also added that an approach from its 34.5 per cent shareholder Glencore "in the short term is unlikely", while claiming the controversial commodities trader might find "better value" in chasing other targets.
Although they played down the bid talk, the analysts still kept Xstrata as one of their top picks in the sector in a generally bullish note on the heavyweight diggers. Arguing that the recent collapse in mining stocks had been overdone, they said the miners were "already pricing in further falls" in commodity prices while claiming valuations had dropped to levels last seen during the financial crisis.
The support helped Xstrata advance 39.6p to 948.3p, as Vedanta Resources and Kazakhmys ticked up 66.5p to 994.5p and 52.5p to 857.5p respectively. Glencore's move, however, was limited to a rise of 10.6p to 384.4p, with the analysts saying it and ENRC (up 32.5p to 633p) were "relatively expensive versus [their] peers".
Overall, the FTSE 100 managed to kick on from Friday's rise – the benchmark index's first positive day after nine consecutive sessions on the slide – by powering up 148.11 points to 5,312.76. Although the International Monetary Fund (IMF) denied reports from Italy claiming it has been preparing a €600bn bailout package for the country, markets around the world instead focused on plans for a fiscal union being prepared by France and Germany.
The banks were continuing their recent attempts at a recovery, including Royal Bank of Scotland which was bumped up 1p to 19.74p. The group was the subject of vague speculation that it may close its equities desk amid reports claiming it has already been reducing the operations, although City voices treated the whispers with scepticism.
Barclays was the sector's top performer, bumped up 12.2p to 167.85p after Evolution's Ian Gordon kept his "buy" rating on the company. In a research note in which the analyst, rather surreally, took the opportunity to call for the London cycle lanes the bank sponsors to be re-routed over safety concerns, he argued that Barclays' "clear defensive credentials continue to be under-recognised and under-rewarded" by investors.
There was just one blue-chip stock in the red, although that didn't stop it being rather a large fall. Randgold Resources slumped 535p to 6,240p – a move of almost 8 per cent – after slashing its production target, which the gold miner blamed on a number of factors including mechanical problems at its Tongon mine in Ivory Coast.
Punters decided to concentrate on the news that the beleaguered Thomas Cook had managed to secure a £200m facility with its banks rather than the tour operator's admission its recent woes have scared off customers.
The group, which has launched a marketing campaign in an attempt to attract holidaymakers, was driven up 20.59 per cent to 21.73p and the top of the FTSE 250 risers, although it remains more than 50 per cent lower than before last week's announcement that it needed more cash.
The shock resignation of its chief executive Peter Hill because of ill health failed to prevent Laird climbing 8.5p to 140.3p, as the electronics company revealed it was still on track to meet its full-year earnings expectations.
The US group Anadarko provided a massive boost for Cove Energy after more than doubling its estimates for the natural gas fields off the coast of Mozambique in which both have a stake. The oil giant said it now believed the fields had recoverable reserves of between 15 and more than 30 trillion cubic feet (tcf), having previously expected "at least" 10 tcf.
As a result, Alternative Investment Market-listed Cove – recently the subject of vague speculation it could become a bid target – jumped up 8.25p to 87.5p, while the numerous energy companies now operating off the coast of east Africa also received a fillip, including BG Group which climbed 53.5p to 1,298.5p on the top-tier index.
Patsystems charged forwards 29.87 per cent to 12.5p after revealing it had received a potential offer. The AIM-listed trading software company, hit hard by the collapse of its largest customer MF Global, has seen its share price drop by more than a half since the start of October, prompting its largest stakeholder ION Trading to make an approach worth 14p a share.
FTSE 100 Risers
l Weir Group 1,943p (up 148p, 8.25 per cent) Engineer grabs pole position on the top-tier index after Barclays Capital's analysts change their price target to 2,500p from 2,350p.
l Lloyds Banking Group 23.68p (up 0.49p, 2.09 per cent) Having previously shed close to a quarter of its share price in eight consecutive sessions on the slide, bank manages to climb for the third day in a row.
FTSE 100 Fallers
l Imperial Tobacco 2,266p (up 12p, 0.53 per cent) Cigarette manufacturer – whose brands include Davidoff and Lambert & Butler – sees a tiny climb after investors choose to focus on less defensive stocks.
l Smith & Nephew 565p (up 10p, 1.8 per cent) Prosthetics manufacturer underperforms the rest of the blue-chip index, having previously managed to shed over 6 per cent in less than a fortnight.
FTSE 250 Risers
l Home Retail 79.5p (up 3.35p, 4.4 per cent) Homebase and Argos-owner ends the session ahead despite analysts from Citigroup deciding to reduce their target price to 60p from 80p.
l ITE Group 184.7p (up 2.8p, 1.54 per cent) Exhibition and conference organiser, which is set to update the market today with its preliminary results, rises after announcing acquisition of Autoexpo.
FTSE 250 Fallers
l De La Rue 904.5p (down 31.5p, 3.37 per cent) Investors in banknote printer decide to bank profits, in the wake of the company having added nearly 7 per cent over the previous four sessions.
l RPS 179.1p (down 0.5p, 0.28 per cent) Engineering consultant slips back after being hit by Numis Securities downgrading its target price to 227p from 294p, although broker keeps its "buy" advice.
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