Market Report: National Express looking attractive for a takeover

With a woeful August for the City finishing on a high yesterday, analysts were on the hunt for the next big takeover deal as a number of stocks on the mid-tier index had their bid potential talked up.

Among them was National Express, which was lifted 16.4p to 250.8p after UBS said the transport group was the "most likely and attractive" target in the sector. The broker highlighted "its diversified business mix, its valuation versus peers and deal economics, and the presence of deal-friendly shareholders", and put forward Stagecoach – up 1p to 257.2p – as one potential aggressor.

Analysts from UBS also suggested Go-Ahead could become a target, saying it may be the "easiest exposure for an international player looking to get into the UK bus and rail market". The group still had its rating cut to "sell", however, thanks in part to its higher valuation, yet it climbed 64p to 1,583p.

Another having its takeover hopes raised was Spirit, the pubs group which was spun out of Punch Taverns at the start of August. The company powered up 2p to 43.5p after Numis Securities said the sector "may have to use expansion and acquisitions to offset rising cost pressure" and that as a result Spirit "could become a bid target".

There was less optimism over the likelihood of deals among the asset managers, despite Citigroup saying the current subdued outlook would "usually stimulate merger and acquisition activity". However, the broker warned the companies under its coverage were "more likely to be consolidators than targets" and that anyone interested in the two possible exceptions – Ashmore (up 19.9p to 404.4p) and Jupiter Fund Management (up 2.2p to 192p) – would have to tackle "significant blocking stake shareholdings".

Vague takeover rumours continued to do the rounds on a number of companies, including Pace. After Samsung was linked with a potential approach last week, the Japanese group Panasonic became the latest addition to the list of possible suitors by market gossips as the set-top box manufacturer put on 3.6p to 105.5p.

The engineers Invensys and Renishaw were also the subject of bid speculation, as they were driven up 18.4p to 277.5p and 136p to 1,410p respectively. Meanwhile, on the blue-chip index Smith & Nephew closed 29p better off at 625.5p despite MF Global playing down recent reheated chitter-chatter suggesting it could receive an approach from either Johnson & Johnson or Stryker, saying a deal would fall foul of US anti-trust authorities.

Overall, the FTSE 100 climbed 125.87 points to 5,394.53, meaning it has added over 5 per cent this week alone, although this did not prevent August being the benchmark index's worst month since May 2010.

Still, investors received a boost from the release late on Tuesday of the minutes from the latest US Federal Reserve meeting. Many were taking heart that they seemed to suggest support for a third round of quantitative easing was rising, while market voices claimed the recent run of disappointing economic data from the US – which included employment figures yesterday – appeared to be strengthening the possibility of stimulus measures being introduced.

It was no surprise, therefore, that those in the mining as well as the oil and gas sectors were well represented on the leaderboard, with Cairn Energy 18.1p higher at 334.8p while Antofagasta soared 67p to 1,349p.

Despite JP Morgan Cazenove saying it remained "cautious" on the UK domestic banks, the sector was still on the rise. Lloyds Banking Group charged forwards 1.57p to 33.6p while Barclays gained 5.35p to 170.75p and Royal Bank of Scotland was 0.63p stronger at 24.27p.

At the other end, the real-estate groups were being knocked down after analysts from Morgan Stanley cut their net asset value forecasts for 2012, focusing particularly on the UK. The ratings of both British Land and Land Securities were hit with a double downgrade from "overweight" to "underweight", with the former falling 5p to 539p while the latter eased forwards 8.5p to 736.5p.

Despite its French peer Carrefour issuing a profit warning, Tesco managed to tick up 13.8p to 378.6p as it revealed it was giving up on its Japanese business after eight years. Shore Capital applauded the decision, saying the disposal "may actually lead to a small boost to profits", while the broker added that Carrefour's disappointing update was "in stark contrast to what we expect to see from [Tesco's interim results] in October."

Down on the fledgling index, there was a severe lack of a party atmosphere around Luminar as the nightclub owner dropped over 30 per cent of its share price, dipping 1.48p to 3.15p. Reports emerged last weekend claiming the troubled company has discussed with its banks the possibility of a debt-for-equity swap.

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