Market Report: Recovery prospects boost Autonomy

Bid talk and a positive broker's note boosted Autonomy, the software group which bucked a weak market trend last night. The stock touched a session high of 1650p, up 5.6 per cent, as rumours of bid interest from Microsoft, the American software giant, swept through dealing rooms, with some quoting a possible offer price of as much as 2800p per share.

Traders played down the chatter, however, pinning the rise on some words of support from Bank of America Merrill Lynch, which raised its target price for Autonomy's stock – up 3 per cent or 47p at 1610p at the close – to 1900p, from 1660p previously.

"Over the past two years, management focused the market on the compliance story, which means that investors are now ignoring the large amount of revenue also being generated in the non-compliance area," the broker said. "This means we are underestimating the earnings upside potential in a recovery."

Elsewhere, the speculators piled into Man, the London-based hedge fund group, which was the subject of rumours anticipating a bid from BlackRock, the American fund manager. The chatter drove Man's shares to a session high of 314.4p, up 3.6 per cent, but they quickly came back to earth, closing at 304.2p, up less than one per cent or 0.6p, as traders weighed in against the theory.

Overall, the FTSE 100, which closed broadly flat on the day before, gave way last night, losing 60.1 points to 5079.27 amid concern about an overnight statement from the US Federal Reserve, which hinted at the possibility of pulling back some of the measures deployed to mitigate the impact of the financial and economic crisis. The mid cap FTSE 250 index was also rattled, declining to 9,093.02, down 123.99 points.

British Airways encountered some turbulence, retreating to 220p, down more than 4 per cent or 9.9p, after Citigroup scaled back its recommendation on the stock to "hold" from "buy" in a European airlines sector review. UBS also weighed in, initiating coverage on BA with a "neutral" rating and a 240p target price.

"We like BA for the long term but, given its outperformance for most of the last year, we believe the share price is vulnerable to profit-taking and bad news on a number of issues that BA is currently facing," Citi explained, referring to the Iberia merger, the American Airlines joint venture approval, the pension deficit, labour negotiations and "what Lufthansa plans to do with BMI".

Parts of the commercial property sector remained unsettled, as some continued to anticipate fundraisings in the wake of Liberty International's placing, which was unveiled in the previous session.

At the close, Liberty, which fell by more than 10 per cent in the session before, was another 2.8 per cent or 14.4p weaker at 492.6p, while Hammerson fell back to 401.4p, down almost 4 per cent or 16.1p, Land Securities lost almost 4 per cent or 26p to 649p, and British Land retreated to 474.4p, down 3.2 per cent or 15.6p.

Elsewhere, Marks & Spencer relaxed to 372.9p, down almost 3 per cent or 11.1p, after ING repeated its "sell" stance, albeit with a revised 325p target price, compared to 280p. The broker said that although investors can expect good news on the gross margin front at next week's trading update, it was "struggling to get more positive on grounds of absolute valuation".

On the second tier, Enterprise Inns, which suffered after being moved to "sell" by UBS on Wednesday, attempted a comeback, rising by 0.8p to 133.2p after Bank of America Merrill Lynch advised investors to pile in on recent weakness. Fellow publican Punch Taverns was also firm, gaining 1.9p to 123.3p thanks to Evolution Securities, which switched its stance to "buy" from "sell", with a revised 160p target price, compared to 120p previously.

"We have always argued that there is a good business inside Punch but that it would take years to get there," the Evolution analyst Nigel Parson said. "What's different is that in the last quarter Punch has had a successful rights issue, sold c. 400 pubs and [has] retired c. £1bn of debt, some 25 per cent of its debt mountain."

Further afield, Hays, the staffing group, fell back to 108.1p, down 1.8p, after Morgan Stanley downgraded the stock to "equal weight" from "overweight", citing a "greater-than-evens" chance that the dividend is rebased, the fact that it expects "the public sector business to be a drag on recovery" and the group's growing exposure to large corporate contracts. Sector peer Michael Page International, which is rated "overweight" at Morgan Stanley, was also weak, easing to 335.8p, down 3.1p.

Back on the upside, UBS supported Charter International, which gained 5.5p to 683p after the broker upped its rating to "buy" with an 850p target price from "neutral" with a 600p target.

"The stock has been a laggard versus the sector over recent months and we think it is time to become more optimistic on the recovery in steel demand, if only from restocking," UBS said, expressing a preference for Charter over "neutral"-rated Cookson, which was 6.7p weaker at 420.8p.