Market Report: Would-be predators put off by Meggitt's many parts

Fears the aircraft-parts maker has fingers in too many pies to become a takeover target helped Meggitt finish in last place on the blue-chip index last night. Disappointed investors left the group 17.1p weaker at 366.4p after Credit Suisse said that, despites frequent bid speculation, the wide variety of its operations were likely to put off any predators.

Many in the City believe a rush of bid activity in the aerospace and defence sector could be just around the corner, with some claiming Meggitt's size and niche market position may make it especially vulnerable to an approach.

Yet Oliver Sleath, an analyst at the heavyweight Swiss broker, warned yesterday that the company's "extremely diverse range of offerings" meant it "could be costly and difficult for a potential acquirer to integrate". Although Mr Sleath said that there were some factors that would make it "an attractive target", he went on to add that he saw Meggitt more as a "consolidator than a consolidatee".

He also downgraded its rating to "underperform" and slashed its target price by almost 20 per cent to 330p, saying he was "growing increasingly cautious" over the outlook for 2012 and 2013, especially because of cuts to government military spending and a slowdown in airline capacity growth.

Overall, the FTSE 100 just managed to keep its recent rally going, despite Standard & Poor's threats to downgrade almost all of the eurozone countries as well as the region's bailout fund. The benchmark index closed ahead for the eighth time in nine sessions, although it was a close run thing as it moved a mere 0.76 points higher to 5,568.72.

Nonetheless, punters' appetite for risk was clearly restricted with a number of defensive stocks on the leaderboard. While Lambert & Butler-maker Imperial Tobacco ticked up 30p to 2,334p, pharma group Shire was lifted 40p to 2,152p in the wake of Goldman Sachs keeping its "buy" recommendation.

Unilever eased up 12p to 2,124p after the owner of Marmite tried to calms fears over whether product shortages will be caused by its workers striking later in the week. The consumer goods giant was also the subject of disposal talk from Espirito Santo's Martin Dolan, who suggested the group should spin-out a number of its food brands in order to highlight its emerging markets exposure.

The analyst said that such a move would create considerable value for shareholders, although he noted that Unilever's management have recently played down the chances of any spin-offs.

It was the final chance for those stocks at risk of demotion as part of the latest indices reshuffle to save themselves, with the substitutions – which need to be approved by the FTSE's EMEA committee – based on last night's closing prices.

Inmarsat (down 4.9p to 427.1p), Investec (6.7p to 363.3p) and Lonmin (down 26p to 1,050p) are all set to leave the top-chip index after failing to mount a rally, while Pace and Thomas Cook – which slipped 1.2p to 66.7p and 0.14p to 16.47p respectively – are among those expected to be relegated from the mid-tier index. The Russian metal groups Evraz and Polymetal are both lined up to make their debuts on the top-tier index, where they should be joined by Ireland's CRH.

The retailers were out of favour following figures from the British Retail Consortium showing sales growth last month was the weakest since May. Among the high street names falling as a result were Marks & Spencer, which was knocked back 14.1p to 314.9p, while Next declined 85p to 2,575p.

There was a further hit for Tesco after the research group Kantar released figures showing its market share had dropped in the wake of its "Big Price Drop" campaign. The supermarket, which also announced the retirement of the head of its Asian unit, retreated 8p to 398.75p ahead of its trading statement tomorrow.

Meanwhile, Home Retail was left at the bottom of the FTSE 250 after sinking 8.65p to 92.25p, a move of nearly 9 per cent. Traders blamed profit-taking in the wake of the Argos-owner adding nearly 40 per cent in eight sessions, thanks in part to the recent revival of vague bid speculation.

For once there was some cheerful news around Mouchel as the troubled support services group announced that David Shearer – who has been involved in turning around STV, Superglass and a number of others – would be its new chairman. The small-cap stock advanced 5.21 per cent to 9.9p in response, although it has still lost close to 95 per cent since March.

Meanwhile, Datong plummeted 18.37 per cent to 20p on the Alternative Investment Market after the covert surveillance group, whose customers include the US Secret Service, admitted government penny-pinching was hitting its operations.

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