Market update - 6 August

The FTSE 100 was down 4.1 points 5450.4 and the FTSE 250 was up 15.4 points at 9091.1 at 12:09 pm on Wednesday. Lonmin dominated the London benchmark, up almost 47 per cent or 1089p at 3408p, after Xstrata unveiled a £5bn offer for the platinum miner. Lonmin rebuffed the 3300p per share proposal – the South African group called the move “opportunistic and entirely unwelcome”. Market sources said the response was not unexpected.

“There are probably enough Lonmin shareholders who want to sell out and invest in other mining plays. The rejection does not mean that we won’t see a takeover,” said one trader, who highlighted Xstrata’s acquisitive past.

Michael Rawlinson, the widely followed mining analyst at Liberum Capital, also expects the bid to succeed.

“We see the bid as opportunistic, synergy driven and likely to succeed,” he said, adding: “We see very little chance of a counter bid and it is a case of who blinks first between Xstrata and the Lonmin shareholders.”

Mr Rawlinson pointed out that Xstrata has already snapped up 8 per cent of its target and is in the market buying more. “Lonmin shareholders are rightly fed up with incumbent management and we feel they will definitely not back a go it alone strategy and will want to lose this offer,” he said,

“When managements are this unloved, [platinum group metals] prices are weak and interloper risk is low, Xstrata have a fair chance of taking this home at the offer price.”

Moving up?

The news in Lonmin excited the broader the mining sector, which has been hurt by the recent fall in commodities prices. Vedanta Resources was up 79p at 1853p and the Eurasian Natural Resources Corporation, which issues a positive production report this morning, climbed to 985.5p, up 35.5p.

Aquarius Platinum, Lonmin’s peer in the platinum mining space, was the strongest and gained more than 17 per cent or 66.75p to 451.75p.

Johnston Press bucked the media sector trend and advanced to 59.5p, up 10.19 per cent or 5.5p, following vague talk about a bid. Firmer support came from Kaupthing, whose analysts advised investors to buy the stock ahead of interim results at the end of this month.

“We believe there is a good chance that Johnston Press will announce a specific costs target or signal a significant exercise is under way to improve efficiency,” the broker said.

Debenhams remained strong as bid rumours pushed more short sellers to abandon downside bets. The retailer was up more than 10 per cent or 5.25p at 55p as traders anticipated a 70p per share bid from Baugur, the Icelandic retail group behind the House of Fraser department stores.

Moving down?

ITV was the worst off on the London benchmark, down 8.21 per cent or 3.8p at 42.5p, after issuing a disappointing set of interim results – ITV swung to a loss from a profit in the same period last year, and halved its dividend in the face of a deteriorating advertising market. Brokers soon weighed in, and Investec said that the while the figures were ok, the outlook is “really very poor”.

The wider media sector was also hit by fears about a sharper-than-expected advertising slowdown and Trinity Mirror lost 16.75p to 117.5p. Mecom group was weaker by 2p at 20.25p.

Elsewhere, DSG International lost 3p to 50p after UBS switched its stance on the stock to “neutral” from “buy”. The broker also reduced its target price for DSG to 50p from 55p.

“We retain a pre-tax profit forecast of £115m (consensus £135m). This is based on -4.5 per cent like-for-likes in the UK and -2 per cent in the Nordic region. Gross margins could fall again from mix and lower credit commissions, although PC World margins comparatives are easier. The next trading update is due on the 3 September. The group like-for-like comparative is a +6 per cent,” the broker said.

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