Market Report: Revived Coach bid talk drives Burberry higher

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The Independent Online

Burberry was back in fashion yesterday after early rumours suggested a bid may be forthcoming from Coach, the American handbag maker.

The rumours were vague, bearing no clues about the level or the timing of an offer, and follow earlier speculation in March, when talk of a bid from Coach added almost 7 per cent to Burberry's share price at one point. Last time round, traders also pointed to a Merrill Lynch report from last year in which the broker cited Burberry as a possible target for the American company or for PPR SA, the company behind the Gucci brand.

The talk took the stock to an intra-day high of 491.25p, before it eased back to 483.75p, up 21.25p.

Elsewhere, bid speculation was evident around Bodycote, the engineering company, which gained 30.25p to 241.75p. The stock rallied thanks to a well-received update in which the company said it had appointed advisers to assist in the possible sale of its testing unit, and a round of rumours anticipating a bid from Sulzer, the Swiss engineering company which tried to acquire Bodycote last year.

Overall, the FTSE 100 closed down 2.1, or 0.03 per cent, at 6,087.3. Weakness among miners weighed on the London benchmark even as Wall Street showed early strength in anticipation of the Federal Open Market Committee's interest rates decision. The FTSE 250 was up 114.9, or 1.15 per cent, at 10,122.3.

The larger FTSE 100-listed miners were hit as metals prices came under pressure from the dollar's rebound ahead of the Fed decision. Vedanta Resources was the worst off, lodged at second place on the loser board, losing 105p to 2,245p. Beside the sell-off in the sector, Merrill Lynch contributed to Vedanta's woes, removing the stock from its "Europe 1" equity list. Kazakhmys was just behind, losing 66p at 1,582p, followed by Eurasian Natural Resources Corporation, which was down 47p to 1,200p.

Banks were also weak as recent cash calls by Royal Bank of Scotland, which was down 5.75p at 345p, and HBOS, which lost 16.25p to 470.5p, weighed on the sector. Alliance & Leicester was down 12p at 517p and Barclays lost 3.5p to 456.5p. Bucking the trend, HSBC added 8.5p to 879.5p and Standard Chartered climbed 24p to 1,794p.

On the FTSE 100, the insurance group Admiral, which rose by 50.5p to 871p, took second place on the leader board after Citigroup said the stock was back in its "good books". Citi analyst Andrew Crean wrote in a new note on the company: "We downgraded Admiral to [hold] in March, highlighting concerns over and pricing trends. But while we would not try and argue these concerns have disappeared, the subsequent 20 per cent sell-off looks overdone.

"We retain our 1,050p price target, but upgrade our recommendation to [buy]," Mr Crean added.

BG was down 77p at 1,231p after it launched a $12bn (£6.1bn) takeover bid for Australia's Origin Energy. The news eclipsed the company's first-quarter earnings, which were ahead of analysts' expectations. Late in the afternoon, there was also vague talk of a counter-bidder in the wings, who was said to be preparing a rival proposal for Origin.

WPP was up 13.5p to 618.5p after Morgan Stanley said the company looked "like a good 'middle-way' choice for an economic slowdown". The broker said: "WPP has relatively low operations gearing (20-30 per cent) and around 350 basis points of 'margin spare' to cope with a downturn... Though 2009 may be weaker, 2010 growth should pick up with the 'mini quadrennial'."

On the FTSE 250, Bellway, which rose 13.5p to 702.5p, was firm despite the latest housing market data from the Nationwide Building Society, which revealed prices continued to decline in April, entering negative territory on an annual basis for the first time since March 1996. Panmure Gordon, while noting the "newsflow will remain negative in the sector", said Bellway was its "key buy recommendation" owing to its strong balance sheet, good land bank and the fact it has outperformed its peers in the slowdown to date.

Bovis Homes gained 7.25p to 465.25p as Panmure reiterated its "buy" rating on the stock.

The pubs group JD Wetherspoon was down despite some benign broker sentiment. JP Morgan said the company's recent update was reassuring, adding: "We continue to believe JDW is well placed to take share in this tougher market, given its value-for-money proposition, and we retain our 'over-weight' rating".

Also on the FTSE 250, the satellite company Inmarsat was up 18.5p at 462.5p thanks to renewed bid speculation.

On AIM, the restaurant chain Prezzo gained 0.75p to 41.25p after Altium Securities revised its trading recommendation on the stock to "buy" from "neutral", saying: "Prezzo continues to be the cheapest restaurant company within our peer group."