Market Report: Tullett Prebon gains ground on deal hopes

Tullett Prebon firmed as the prospect of deal activity lured the bulls last night. The stock rose 15p to 290p after Citigroup said that, faced with a rapid shift towards electronic trading, the inter dealer may revisit takeover talks with GFI in an attempt to strengthen its position in that market, and take on Icap, which was up 6.5p at 415.9p yesterday. Coupled with the undemanding valuation, this prospect could provide a floor for the share price, which has been hit by concerns about the outlook.

"The industrial logic of linking up these two groups to form a more effective rival to [the] market leader, Icap, is strong. In addition, GFI has strong electronic capability in specific products such as energy and CDS. A larger group could fund greater technology spend to build a rival offering to [Icap's Brokertec/EBS platforms]," Citi said. "A failure to reach agreement on price and managerial position may have caused these approaches to fail in the past, and could well scupper any future discussions, but the possibility of [mergers and acquisitions activity] might also provide a floor to the Tullett share price slide."

Overall, the FTSE 100 jumped by almost 2 per cent or 97.18 points to 5293.99, while the FTSE 250 strengthened by 1.1 per cent or 100.76 points to 9099.84. Volumes thinned, with traders winding down ahead of Christmas. "It would be premature to bank any profits in equities now ahead of the year end, when the uptrend is still firmly in place," Angus Campbell, head of sales at Capital Spreads, said. "There are still a lot of people long on equities and their view is that prices will continue to rally in 2010, so there's no point in selling now. There may also be a bit of optimism about growth driving us higher too as [today's] final GDP numbers are expected to be revised upwards and could possibly ... show that the UK wasn't in recession in the third quarter of 2009."

Hopes of progress in the Dubai World debt talks boosted the banking sector, with Barclays rallying 8.75p to 273p, HSBC gaining 22.5p to 702.5p and Standard Chartered advancing to 1543p, up 48.5p. Lloyds edged up 0.545p to 49.245p, while Royal Bank of Scotland was broadly unchanged at 29.81p, down 0.02p.

Though still concerned about the potential impact of the Basel committee's regulatory reform proposals, investors were said to be piling in on the view that last week's concerns about another wave of capital raisings may have been overdone, particularly in light of the fact that the final policy was still some way off.

The point was touched upon by Deutsche Bank, which weighed in on the issue yesterday. "These are discussion documents, not the final product," the broker said in a 17-page circular on the proposals. "Impact studies conducted with the banks will lead to refinements and redrafts to make the policy more effective in achieving the overall objectives of greater bank sector stability."

Elsewhere, the mining sector bounced as the dollar stabilised, opening up some breathing space for metals prices. As a result, Xstrata jumped by 34.5p to 1053p, while Lonmin ended 44p stronger at 1839p. Rio Tinto gained 71p to 3203p, BHP Billiton was at 1909p, up 26p, while Anglo American rose 56p to 2650p.

In the oil and gas space, Cairn Energy rose 142p to 3188p after announcing that it had secured a rig to allow it to commence drilling in the Disko West area, off Greenland, in the second half of next year. In response, analysts at the Royal Bank of Scotland reiterated their "buy" stance, saying that Cairn had "delivered an early Christmas present to shareholders" by bringing its offshore Greenland drilling programme forward to 2010, compared with previous guidance of 2011.

"Cairn has been one of the better UK [exploration and production] performers in recent months, which we believe is partly down to growing optimism around the Greenland exploration story," the broker said, adding that the next step for the company was clarity on the size of individual prospects. "We will revisit our 3440p target price after clarity on prospect sizes, but we expect the market to react positively to the news."

Further afield, the wireless chip manufacturer CSR, down 4.2p at 391.7p, was weak despite some words of support from Bank of America Merrill Lynch, which added the stock to its most preferred list of European tech stocks, saying that concerns about the integration of Bluetooth with baseband chips in handsets, and about the last of upgrades to guidance for the fourth quarter, had been overdone.

In other changes, Merrill moved the FTSE 100-listed software group Sage, down 1p at 223.2p, from its most preferred list to its least preferred list of tech stocks. "The shares [have] performed relatively well over the past month, which included the full-year results. Analyst models were upgraded as the underlying profitability for Sage was better than expected," the broker said. "However, now we see no catalyst for the coming months and the 2010 story (with no return of growth until the second half and no real margin improvement) does not look overly exciting."

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