Market update - 7 August

The FTSE 100 was up 23.3 points at 5509.4 while the FTSE 250 was down 33.8 points at 9097.7 at 12.04pm. The mining sector continued to dominate the London benchmark’s leader board as investors made bets on a round of consolidation following Xstrata’s bid for Lonmin.

The platinum miner was still fighting off the approach – in a statement to the market this morning, Lonmin called the offer “wholly inadequate”, pointing out that the 3300p per share price proposed is “a discount to the price at which Lonmin shares were trading as recently as 30 June 2008”.

Sir John Craven, chairman, said: “Shareholders are strongly advised to take no action in respect of the pre-conditional offer and to reject the approach.”

Among brokers, Credit Suisse questioned the gambit:

“… we are sceptical of the Lonmin deal and struggle to see why [Xstrata] management did not go after Freeport Copper instead. At £33 per share, Xstrata is acquiring Lonmin for a [2009 price to earnings multiple] of 16.5 times. At $1,750 per ounce, the deal is 2 per cent accretive to [2009] earnings. The Lonmin assets are tired, in need [of] a significant management focus at a time when momentum in the [platinum group metals] markets [is] waning. Perhaps our scepticism will be proven wrong, but for now we think the deal is likely to be a hard sell.”

Goldman Sachs, while calling the deal “opportunistic”, highlighted the read across in the wider sector. The broker said: “We… believe the bid will renew investor focus on potential [merger & acquisition] activity in the sector given the de-rating the sector has recently undergone during a time of record cash flows.”

In line with Goldman’s view, the Eurasian Natural Resources Corporation was up 59p at 1076p, at first place on the FTSE 100. Antofagasta, at second place, was up 23.5p at 566p.

Moving up?

The banking sector was firm this morning following in-line results from Barclays, which reported a 33 per cent drop in first half profits after taking a £2bn write down.

Commenting on the figures, Cazenove said that overall, it was a “good performance given the trading environment”.

Barclays was up 13.75p at 382.75p. HBOS climbed to 339.5p, up 6.5p, and Lloyds TSB, which was the focus of vague stake building rumours this morning, was firmer by 10.25p at 324.5p.

The crude price recovered slightly and as a result, Cairn Energy was up 108p at 2763p. BP gained 11.75p to 532.75p.

Among the mid-caps, Johnston Press supplemented earlier gains ahead of its interim results, due later this month. The regional newspaper publisher was the strongest on the FTSE 250, up 4.75p at 64.75p.

The house building sector was up as investors were cheered by news from the Bank of England, which resisted the temptation to raise interest rates today. The MPC decided to the kept the UK benchmark rate on hold at 5 per cent, helping Barratt Developments, which was up 6.75p at 118.75p, and Taylor Wimpey, which gained 1.25p to 50.25p.

Moving down?

International Power was lodged at the bottom of the FTSE 100 after posting disappointing interim results, down 4.5p at 87.2p.

Hammerson, down 8p at 981p, sullied sentiment around the large cap property groups with its update and Liberty International was down 38p at 862p. Land Securities was down 19p at 1326p.

Debenhams came off the speculative rally path as the Baugur bid rumours faded – the retailer was down 3.75p at 53.75p.

Hazard detection and life protection group Halma was down 9.25p at 194.25p after Goldman Sachs moved the stock to “sell” from “netural”.

“Halma has outperformed the sector by 15 per cent since mid June and is now some 6 per cent above our 195p 12-month price target. In addition, a key message from the second quarter earnings season has been the ongoing deterioration in the construction market (both residential and non-residential), one of Halma’s biggest end market exposures (40 per cent of sales),” the broker said.

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