Market Report: Resolution revived with deals on hold
Wednesday 07 November 2012
Putting a lid on deal doing for a while has helped Clive Cowdery's insurance group to the top of the blue-chip index. His formerly acquisition-hungry Resolution couldn't appear to sate its appetite and investors weren't that happy. But last year it decided to change strategy and return cash to investors rather than make more acquisitions.
City scribblers think it is now undervalued and it is time to buy. Investors followed suit and the insurance group jumped 15.4p to 236.6p.
Analysts at Bank of America Merrill Lynch said its "shares are down 10 per cent year to date against a sub-sector up nearly 30 per cent. The valuation case is now compelling across a range of measures… shares are trading at a 20 per cent discount to peers." Bank of America's researcher Blair Stewart said: "We now have greater confidence in the company's ability to meet our dividend forecasts. And this is the most obvious reason to own the shares."
The insurance sector was in focus for City traders too. Gossip mongers touted round a reheated rumour that European insurance groups were taking a look at Legal & General. The rumours surfaced in 2010 when dealers thought Zurich Financial could be eyeing it. This time vague whispers of Zurich but also German group Allianz Group, which updates the market with its third-quarter results on Friday, were doing the rounds.
The hazy bid chatter accompanied a share price rise of 3.9p to 144.2p for Legal & General.
Silicon Fen has raided Silicon Valley for a cupboardful of microchip copyrights. The Cambridge-based smartphone microchip supplier ARM Holdings is leading the Bridge Crossing tech consortium in the $350m (£220m) purchase of a patent portfolio from Nasdaq-listed and California-based Mips Technologies.
Down the road in Kings Langley, Hertfordshire, graphics and video specialist Imagination Technologies has snapped up the rest of Mips for $60m, buying up 160 engineers and 82 of Mips' patents. It will also get a licence for the 498 patents which ARM's consortium has bought. Imagination, which has Apple and Intel as shareholders, has waded in to the deal to make sure it is still a contender in the microchip patent business and it doesn't want to lose out to ARM. But analyst James Goodman at sInvestec isn't yet convinced on the Imagination deal.
He reduced his share target price to 498p and moved his rating to hold and said: "We see increased strategic risk as Imagination attempts to achieve what Mips could not, whilst also continuing to defend its leadership in graphics technology. With another layer of risk to the investment case… We expect ARM to remain dominant in its core markets."
Mips (formerly Microprocessor without Interlocked Pipeline Stages), was put up for sale earlier this year. Imagination's shares booked in a 9.3p rise to 474.3p. ARM's deal was better received by analysts. It is contributing almost half the deal price, $167.5m, and its shares rose 14.5p to 709.5p.
Retailers were the focus of the week with Marks & Spencer and Primark-owner ABF reporting yesterday and Morrisons supermarket later this week. Marks & Spencer gained 10.8p to 398.7p as chief executive Marc Bolland asked the City to give him more time to implement change and ABF, boosted mainly by its Primark retail division, dropped 1p to 1,365p.
The City's main focus has been on the outcome of the US election. Investors took heart from reasonably healthy corporate results and the FTSE 100 index moved up 45.84 points to 5884.9.
On AIM, Bowleven, the Africa-focused oil and gas company, has agreed a deal with blue-chip oil services group Petrofac. Petrofac will work with Bowleven on the development of the Etinde Permit, offshore Cameroon. Analysts think the deal will ease any funding concerns for Bowleven for now. It spurted up 5.75p to 80.5p and Petrofac lost 4p to 1,566p.
Fellow AIM player Irish-focused Europa Oil & Gas, gave an update on its Mullen prospect in the Irish Atlantic Margin. It is seeking a joint venture partner for the prospects to get them to a "drillable status". The shares advanced 1.12p to 9.38p.
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