Market update - 26 August

The FTSE 100 was down 91.1 points at 5414.5 and the FTSE 250 was down 73.3 points at 9109.4 at 11.56am today. Liberty International was among the few stocks in the black this morning – stock gained 46p to 991p after Simon Property Group, the American real estate group, said it had increased its stake to 4.2 per cent and Australia’s Westfield confirmed a 2.96 per cent holding. “There is a lot of bid speculation around this now. It started last week when some people were still sceptical. But that has changed now,” said one trader, referring to Simon’s initial announcement of a 3.45 per cent stake.

Among analysts, JP Morgan flagged the importance of Simon’s initial move, suggesting it may result in a takeover bid.

The broker said: “We believe one possible way of looking at this is that Simon Property’s stake is not a short-term (trading) transaction and may (eventually) result in a takeover bid.”

“Neither company, however, has made comment either way on this. We come to this potential conclusion because: (1) Liberty is one of the most expensive property companies in Europe in our view, (2) our economists believe that the dollar may rise further against the pound, (3) Simon’s management is well regarded by our US colleagues and industry, (4) Simon Property has a strong balance sheet and may see strong value creation opportunities in Liberty’s shopping centre portfolio, as it could for example bring in international retailers and shopping centre knowledge, (5) Liberty’s portfolio is hard to replicate and Simon may see this as the only way to get access to the UK and would be happy to pay a premium for that, (6) We believe Liberty needs a new strategy and Simon’s move may fit in this.”

Moving up

The housing sector was strong after Bovis Homes posted interim results, revealing a slump in profits and a reduced dividend. Traders said the rally was thanks to a feeling that the worst is already priced in to sector share prices.

Support was also forthcoming from Cazenove, whose analysts said that Bovis appears to be a “potential survivor of the housing battle ground”.

“The group’s management appears to be running the business for cash rather than profits which we believe is the correct strategy given awful housing market conditions in the UK,” the broker added.

Bovis was up 14.5p at 442.5p and Taylor Wimpey gained 4.5p to 50p.

Moving down

Imperial Energy eased back to 1222p, down 18p, after announcing a recommend 1250p per share offer from ONGC Videsh, the international arm of India’s state backed Oil & Natural Gas Corporation. Traders attributed the weakness in the stock to the fact that the bid price is below the initial 1290p per share approach confirmed by Imperial in July. They added that market was also geared up for a bidding war between ONGC and China’s Sinopec, which looks less likely now.

On the FTSE 100, UK financials eased back as investors took stock overnight losses on Wall Street, where leading indices were haunted by fears for Fannie Mae and Freddie Mac, the US mortgage market giants.

As a result, the London Stock Exchange was down 31.5p at 722p and Lloyds TSB eased back to 289.5p, down 10p.