Market Report: Takeover spotlight hits Jardine Lloyd Thompson

  • @MrNickClark

Takeover gossip was limited yesterday as the market waited for the Government's Comprehensive Spending Review (CSR). Yet shares in the insurance group Jardine Lloyd Thompson soared early as rumours of a potential bid battle escalated.

The names in the frame were Aon and Marsh & McLennan. Market sources suggested one was set to put an £8-per-share bid on the table. But Jardine's shares weakened in the afternoon and closed up 16p at 597p.

The miners rebounded with Xstrata leading the sector as metal prices – particularly copper – improved. The Anglo-Swiss company also said it would spend $710m expanding its ferrochrome operation and the shares rose 42.5p to 1291p. Elsewhere, Rio Tinto said it would invest a further $3.1bn on infrastructure at its Pilbara iron-ore mine in Western Australia. The shares rose 108p to 4056p.

The medical supplies manufacturer Smith & Nephew saw its shares rise by 17.5p to 568p after it was helped out by some of its peers across the Atlantic. After overnight results from Stryker Corporation and Johnson & Johnson, JPMorgan Cazenove released a note saying that while the orthopaedics market seemed to have slowed, "it does not look worse than our expectations at this point". That followed a note from UBS on Tuesday which marked Smith & Nephew as a potential M&A target.

Plummeting to the bottom of the FTSE 100 was BAE Systems, which went ex-dividend at the same time as investors digested the Government's spending cuts. The defence group gave up 14p to close at 349.9p after Execution Noble said the CSR contained such negatives for BAE as the retirement of the Royal Navy's Harrier jump-jet fleet and the RAF's cancellation of Nimrod aircraft orders. However, it added that the cuts would have been within BAE's "planning parameters" and kept its "buy" recommendation. Goldman Sachs was not so bullish, putting BAE on a "sell" footing, saying it faced "major headwinds in the UK and US armoured vehicles business".

The brokers were lining up to support BAE's second-tier rival Babcock International, which had "buy" ratings from four houses including Panmure Gordon and Seymour Pierce. Caroline de La Soujeole, of Seymour Pierce, said the fact that the Government had delayed a decision on Trident nuclear missiles was good news because it would lead to more maintenance work for Babcock. Also, seven new submarines will be deployed and there are still six destroyers to be built.

She said the previous day's price fall was unjustified, although rumours swirled that the bid costs for BAE's acquisition of VT Group could come in higher than expected, while synergies could be lower. BAE's shares rose by 9.5p to 573.5p.

Shares in all of the FTSE-listed railway companies rose after they were given the green light by the Government to raise ticket prices by 30 per cent from 2012. The best performer was Stagecoach, which rose 17.6p to 205.1p.

On the FTSE 250, the wheels fell off Hansen Transmissions International after a disastrous trading update. Its stock dropped by more than 18 per cent after it warned that full-year revenues would be lower than expected. The company, which makes gearboxes for wind turbines, said the second quarter of its 2011 financial year was better than the first half but, looking forward, customer orders had been hit by "significant adaptations". Its original guidance of up to 10 per cent revenue growth for the year was lowered to a 10 per cent fall. As a result, KBC Peel Hunt cut its rating from "buy" to "hold" and the shares fell by 7.3p to 43p.

Also sliding after a half-year update was the trucking company Stobart Group. While it reported a healthy 38.7 per cent increase in profits to £15.4m, with revenues up 11.7 per cent, the shares tumbled after it said that tax rises and the Coalition's spending cuts could affect its business next year. It said 2011 estimates would be near the bottom of the range, prompting Investec to cut its own profit forecast from £36.5m to £33.5m. The shares closed down 13.5p at 143p.

Another update casualty was Filtrona. Shares in the company, which makes everything from cigarette filters to printer cartridge components, fell by 14.2p to 244.8p after it said that revenue growth in its porous technologies division was likely to slow in the fourth quarter. Panmure Gordon reduced its rating to "hold".

Dana Petroleum's boss, who failed to prevent it from being taken over by Korea National Oil Corporation, has wasted no time in finding another job. Tom Cross is to take over at the oil and gas investor Parkmead Group as its executive chairman. The news initially saw Parkmead's share price more than double, although it weakened slightly to close 1.3p higher at 3p. Mr Cross, who replaces Colin Goodall next month, has been a non-executive director at Parkmead since October 2006.

Evolution Group suffered yesterday, having dropped its bid for Panmure Gordon the day before when Panmure rejected it outright. Evolution's shares fell 2.25p to 86.25p and Panmure, whose shares fell 6.5 per cent on Tuesday, recovered by 0.5p to close at 27.5p.

A cautious update from the bicycle company Tandem Group prompted a 13.5p fall in its share price to 139p.