Market Report: Scottish & Southern hit by dampened bid hopes

Analysts were clearly in the mood to be killjoys yesterday, as the City scribblers poured cold water on a number of investors' takeover dreams.

Among the companies having its bid potential talked down was Scottish & Southern Energy (SSE), a persistent favourite of the market gossips.

Vague chatter has linked a number of companies with the utility in recent months, with Iberdrola the latest name following reports this week from Europe claiming that the Spanish giant has been mulling over whether to make an approach.

Citigroup, however, was not convinced, despite conceding SSE's attractiveness as "the last mid-sized integrated utility in Europe with a 100 per cent free float".

Its analyst Peter Atherton said he expected the company's "fiercely independent" management to demand more than 1,800p-a-share from any aggressor, and that he therefore found "it very hard to envisage a scenario where a bidder could offer SSE a price that its board would be likely to find acceptable and have any prospect of earning a reasonable return for its own shareholders".

Mr Atherton also pointed out that the share prices of its peers who have engaged in consolidation recently have largely underperformed over the last few years. The analyst cut SSE's rating to "hold", highlighting its strong run over the past year, and the group dropped 33p to 1,335p.

Meanwhile, Matrix's Rajeev Bahl was not convinced about bid talk which has helped Misys rise more than 16 per cent over the week, describing the vague speculation as "premature". The analyst said the software company "has yet to demonstrate that it can deliver on revenue synergies from the recent ... Sophis acquisition", although it still powered up 11.5p to 368.9p.

Mr Bahl also dismissed chatter around Sage, which has been reheated this week with Oracle and SAP among the potential bidders mentioned. Despite the persistent rumours around the technology group, which edged forwards 0.6p to 292.1p, he said it was an "uniquely unattractive bid target because it would be hugely expensive to digest", although he conceded a merger with the US company Intuit was the "only deal we feel would make sense".

Elsewhere, Dairy Crest shifted 1.9p lower to 403.5p as Panmure Gordon's analysts said that although they "cannot definitively rule out a potential takeover... we believe an imminent approach to be unlikely."

At first it looked as if the FTSE 100 was going to end a volatile week on a high note, with strong GDP figures from the eurozone helping it touch 6,001.33 points in early trading. Yet, with investors reducing risk before the weekend, a late sell-off saw the index close 19.09 points down at 5,925.87.

After suffering from a drop in commodity prices on Thursday, some of the miners managed a rebound, although Fresnillo's climb of 20p to 1,324p still meant the world's largest primary silver producer has lost 10 per cent over the last three sessions.

Centrica – which has seen the re-emergence of speculation in the past few days it could be a target for Qatar – was initially driven up to 325.8p after Deutsche Bank raised its advice to "buy", pointing out it has hugely underperformed its UK peers over the past year. Blaming this on "fears about margin pressures", the broker said that "once price increases have been implemented in the coming months the shares should re-rate", but by the bell Centrica was in the red, down 0.9p to 317.3p.

It was a similar story for Shire, as the drugs group reached 1,987p thanks to the continued presence of vague takeover talk, although despite a late plummet it managed to keep its head above water, finishing up 3p at 1,961p.

There was a small bounce for Keller on the FTSE 250 after its profit warning on Thursday saw its shares lose nearly 20 per cent. As the group regained 4.5p to close at 533.5p, analysts were rushing to cut their price targets, including Citigroup's David Phillips. However, Mr Phillips did provide a glimmer of hope, suggesting it was "not inconceivable that we may see some merger and acquisitions interest from trade buyers".

Rentokil Initial jumped up 3.8p to 100.9p with the multi-tasking group given a helping hand by Credit Suisse. The broker raised its advice to "neutral", predicting the second-half of the year should bring improvements for Rentokil's struggling CityLink unit "as likely new contract wins boost volumes and reduces the downward pressure on group profitability".

Down on the Alternative Investment Market, Ashley House had nearly 16 per cent of its share price wiped out, sinking 3p to 16p, as the primary care premises company issued a profit warning, blaming uncertainty among its customers over the Government's plans for the NHS.

Meanwhile, Quintain – which has been the subject of vague takeover speculation recently – increased 2.75p to 51.75p on the small-cap index after the property developer gained planning consent for its Wembley scheme.

FTSE 100 Risers

Whitbread 1,668p (up 35p, 2.14 per cent)

Continues to benefit from Royal Bank of Scotland's suggestion it could spin-off its Costa Coffee unit.

MJ Sainsbury 362.8p (up 7.5p, 2.11 per cent)

Supermarket advances as Charles Stanley upgrades its advice to "accumulate".

BAE Systems 339.2p (up 4.8p, 1.44 per cent)

Reveals it has won $850m contract to work on the US Army's ammunition plant in Virginia.

FTSE 100 Fallers

ITV 69.4p (down 2.1p, 2.94 per cent)

Broadcaster endures third consecutive session in the red following its update on Wednesday.

Prudential 735p (down 13.5p, 1.8 per cent)

Insurer slides despite Deutsche Bank increasing its target price to 835p from 785p.

Next 2,281p (down 41p, 1.77 per cent)

Retailer retreats after John Lewis reveals a year-on-year sales dip over the previous week of 1.4 per cent.

FTSE 250 Risers

Spectris 1,551p (up 60p, 4.02 per cent)

Electrical engineering group announces a 21 per cent sales rise in first four months of 2011.

Kesa Electricals 141p (up 4.7p, 3.45 per cent)

Comet-owner advances despite Shore Capital reiterating its "sell" recommendation.

Cable & Wireless Worldwide 53.05p (up 0.95p, 1.82 per cent)

Telecoms group gains for seventh consecutive day as takeover speculation persists.

FTSE 250 Fallers

Stobart 128p (down 7.7p, 5.67 per cent)

Denies a newspaper report the FSA was examining a property deal with its chief executive.

Supergroup 1,160p (down 59p, 4.84 per cent)

Fashion chain continues recent plummet after Goldman Sachs takes it off its "conviction buy" list.

International Personal Finance 367.1p (down 2.9p, 0.78 per cent)

Moves back despite RBC initiating coverage with an "outperform" rating.

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