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Market Report: Shanks spikes on talk of resurrected Carlyle bid

Nikhil Kumar
Thursday 23 September 2010 00:00 BST
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The rumour mill rumbled on last night, with Shanks rallying by as much as 12 per cent on talk of renewed bid interest from the Carlyle Group.

The American buyout firm, which ended bid talks with Shanks back in March, was said to be mulling another offer for the waste-management group. Last time round, Shanks said the 120p-per-share price put forward by Carlyle failed to reflect the value of its business, prompting an end to months of discussions with the American firm. Despite failing, Carlyle was rumoured to be thinking about pitching an offer at the same level, as Shanks's shares, which stood at 116p at the beginning of March, closed at 103.5p on Tuesday. Boosted by the speculation, they touched a session a high of 116p, up 12.5p, before closing at 110.2p, up more than 6 per cent or 6.7p, last night.

Overall, the benchmark FTSE 100 index fell back, shedding 24.28 points to 5,551.91, with weakness among financial stocks off-setting strength in the mining sector. The mid-cap FTSE 250 index was also under pressure, losing 96.74 points to 10,448.33. The session was driven by signs that both the US Federal Reserve and the Bank of England were moving towards another round of monetary easing, indicating growing caution on the part of central bankers.

The possibility of the Fed pumping more cash into the US economy weighed on the dollar, which in turn underpinned gains on the commodity markets. That, predictably, led to gains in parts of the mining sector. Antofagasta, for instance, swung to pole position on the FTSE 100, adding more than 3 per cent or 37p to 1,214p.

Kazakhmys at 1,441p, up 41p, and Xstrata at 1,198.5p, up 31p, were also higher, while Randgold Resources drew strength from a renewed spike in the gold price, swelling by 180p to 6,490p. Gold touched record highs for the fifth consecutive session as investors sought a hedge against the threat of inflation and sluggish economic growth.

In the wider sector, BHP Billiton was 41p better off at 2,000p against the backdrop of reports that China's Sinochem had roped in bankers to study a counter bid for Canada's PotashCorp, the fertiliser giant which yesterday said it had filed a lawsuit seeking to block BHP's hostile offer.

The Anglo-Australian group was also the subject of some cautious comment from HSBC, which expressed a preference for Rio Tinto, up 82.5p at 3,652.5p last night. "Rio Tinto is two years ahead of BHP Billiton in terms of reaching a position of excess cash," the broker said, adding that if the latter succeeds in its gambit to secure control of Potash, its balance sheet could be tied up for "18-24 months with disposals and two to three years without".

Elsewhere, the banking sector was lower amid growing concern about the strength of the recovery in the UK and the US. Standard Chartered was the most resilient, easing 10p to 1,874p, while the Royal Bank of Scotland (RBS) was the worst off, shedding 1.08p to 47.5p. HSBC – in focus amid reports, later denied by the bank, that its chief executive Michael Geoghegan had threatened to quit if he is not elevated to the chairmanship – fell by 7p to 664p and Barclays fell 4.9p to end at 306.7p.

Newly minted blue-chip Weir, which commenced trading on the FTSE 100 only at the beginning of this week, was marked down by 45p to 1,395p after RBS analysts sounded a note of caution on the engineering group's valuation. The broker said that while its forecasts may be slightly conservative, and while it did not expect the company to disappoint with its quarterly update in November, current valuation metrics meant that the shares were "beginning to look full". "We remain firm fans of Weir and believe in the long-term growth opportunities, but we prefer to buy on weakness in the short term," RBS added, lowering the stock to "hold".

Further afield, Wellstream continued to attract interest, edging up by 3p to 788p, as investors awaited further news on the recently disclosed bid approaches. UBS said it was raising its target for the stock to 800p to account for an 80 per cent chance of an offer coming through. The broker stuck to its "neutral" stance, however, while Morgan Stanley revised its recommendation to "equal weight" from "underweight", with a new 740p target price. Like UBS, RBS analysts also stuck with their "hold" view, but upped their target price for the stock to 800p.

Asos also failed to make any headway, giving back 35p to close at 1,067p after Morgan Stanley called time on the online fashion retailer's shares. Though positive on the business, the broker said continued strength in the stock meant that ASOS was now rated higher than almost any electronic commerce retailer under its coverage, "including Amazon". Switching its stance to "underweight", Morgan Stanley recommended switching into Carphone Warehouse, which was 1p lower at 238.5p, and H&M.

"We would become buyers again if the stock pulled back to around 900p, we saw a significant and sustained acceleration in UK sales, or greater assurance that ASOS can manage the risks of international localisation," the broker added, keeping its target for the shares unchanged at 980p.

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