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Market Report: Takeover talk is back over BG Group

  • @LauraHChesters

Perhaps traders really do believe the adage that if you say something enough times it will come true. Perennial bid target, oil and gas specialist BG Group, was back on the lips of fast-talking traders today. Dealers insisted the rumour could come true this time and the shares spurted to the top of the benchmark index, 25.5p better at 1,145p today.

Traders – even those not trying to flog BG shares – think the stock has reached a point that makes it just too cheap for rivals to ignore.

Royal Dutch Shell, up 3p to 2,267p, has often been mentioned as a potential acquirer. BP, down 3.55p to 455.45p, and US based Exxon Mobil have all been thrown up as possible bargain hunters, and then there are buyers who may emerge from China.

The reason BG has become such an attractive story to tout for the mergers and acquisitions (M&A) bankers and traders with long positions in the stock is the decrease in its share price – they hit a two-year low last autumn. BG warned in October that its production wouldn't grow this year because of issues and delays at some of its projects and punters dumped the stock. It lost 14 per cent in one day. Next was a warning in November that it would reduce supply to its Chilean accounts due to supply problems in Egypt.

The shares are still more than 15 per cent below its pre-October price and its assets in Brazil, Australia and Africa are tasty prizes for the big oil and gas players.

The benchmark index was clinging onto Monday's rise with very weak volumes of trade. Mixed indicators sent it on a bumpy course through the day.

Positive news out of Europe – in the shape of German economic surveys – was set against rising concerns that the UK's fourth-quarter GDP will be negative later this week and the FTSE 100 finished 1.81 points worse at 6,179.17.

Jefferies analysts cast their eye over the world of publishing, and Financial Times-publisher Pearson is still out of favour after issuing a profit downgrade on Monday.

Jefferies' David Reynolds and Will Smith think there is a prospect of larger-scale M&A in the media sector but rate Pearson a hold, with a share-price target of 1,290p. Shares lost 21p to 1,181p.

Messrs Reynolds and Smith prefer Reed Elsevier, which they rate a buy with a target of 760p. But the shares were 1.5p worse off at 686.5p. They also like mid-tier index group Informa and rate it a buy with a price target of 580p but the publisher and events group was also in negative territory and lost 3.1p to 479.8p.

Former Marks & Spencer executive chairman Sir Stuart Rose is to become chairman of online food retailer Ocado. Its shares jumped 5.95p to 101p on the news, topping the mid-cap index.

The news did remind some sleepy traders that Marks & Spencer itself has been a long-rumoured bid target and vague speculation resurfaced. M&S finished 3.2p ahead at 369.7p.

Back on the mid-tier index, a house-price recovery and diminishing competition is expected to benefit property site Rightmove, UBS's website whizzes suggested.

UBS's Alex Hugh is so confident of Rightmove's success he has rated the shares a buy, up from neutral, and raised his price target to 1,800p, up from 1,600p. Investors were already convinced – the shares built up a position near the top of the mid-tier index and added 44p to 1,599p.

The business, which sells space to estate agents who want to list properties, has said goodbye to competitor PropertyLive.co.uk which is pulling down the shutters at the end of the month.

Mr Hugh says: "Rightmove's competitive positioning remains intact, in our view."

He adds that investors who worried about rival Zoopla fretted unnecessarily. Zoopla has been on a buying spree recently and its latest purchase last month was Globrix.com.

Rightmove's share price has already jumped more than 85 per cent since the beginning of 2009 but Mr Hugh thinks there is further growth to come and says: "Our analysis of viewing data shows Rightmove remains as strong as ever."

Oil and gas firm Cairn Energy plans to spend more than £150m a year on exploration and appraisal over the next five years and the shares trickled up 1.7p to 285.7p.

On AIM, Lo-Q, which creates virtual queue devices for theme parks, has signed up country star Dolly Parton's water park, Dollywood's Splash Country, while the existing contract with Tennessee-based Dollywood has been extended for another three years. The shares were on song, up 5.5p to 397.5p.