The Market Report: Chemring races up with its late show

  • @greentoby

Traders with half a mind on the weekend were shocked into action late in yesterday's session by news of a possible takeover. Chemring, the military equipment maker which has been down in the dogs recently, shot up by a third after announcing it had been approached by a potential admirer just as many in the City will have been eyeing the door at the end of a remarkably quiet week.

The group was on the climb for much of the day but it wasn't until about half an hour before the bell that bosses released a statement admitting it had received a "highly preliminary expression of interest" from the US private-equity giant Carlyle. This prompted punters to rush into the shares, and Chemring eventually closed a huge 101.3p stronger at 414.7p, although, following its recent weakness, that's still lower than where it traded back in March.

While the company had been touted by some as a possible takeover target before, talk strengthened recently in the wake of its admission in June that delays to US government contracts had seen its first-half profits plummet.

The subsequent share price fall persuaded the analysts at UBS to add Chemring to the broker's M&A Watchlist, with them suggesting it could be the subject of a leveraged buyout, a management buyout or "a takeover by a larger defence prime contractor", while bid speculation also did the rounds little more than a month ago.

It was not the only M&A activity in the Square Mile. Rival energy explorers Petroceltic and Melrose Resources revealed they had agreed to merge, with punters in the latter getting 17.6 shares in the former as well as a special dividend. In response, Aim-listed Petroceltic slid back 0.74p to 7.44p as Melrose edged up 1p to 136.5p on the small-cap index.

In the wake of Angela Merkel, speaking at a press conference in Canada, saying Germany would do "everything we can" to save the euro, the FTSE 100 finished the week on a high by advancing 17.91 points to 5,852.42.

The banks were playing a major role, and Lloyds was the top riser after climbing 1.24p to 34.22p while Barclays charged up 6.65p to 192.85p.

The miners were not so hot, with Eurasian Natural Resources (ENRC) one of those in the red after Nomura's Patrick Jones pleaded with it not to spin off its international assets. The Kazakh digger is considering a possible spin-off, with the theory being that it may close the discount at which it trades to its peers, but the scribbler argued such a move could in fact be "a de-rating catalyst".

Saying a spin-off "would have significantly higher geopolitical, execution, and financing risks than the parent", he reiterated his reduce recommendation on the stock as ENRC slipped back 2.7p to 369.7p.

Elsewhere on the Footsie, Pennon retreated 2.5p to 747p after the utility admitted trading at Viridor, its waste management business, had been tough lately. HSBC's response to the update was to cut its recommendation to neutral.

It is not just Apple devotees that are eagerly awaiting the iPhone 5. Tech firm Laird, whose electronic components are used in the smartphone, jumped 7.4p to 222.7p on the FTSE 250 after analysts from UBS turned buyers on the stock, saying the launch of the latest iPhone, which the chatter suggests could come next month , "should drive growth".

Another benefiting from broker support was Ophir Energy, which spurted up 20.5p to 531.5p. The recent weakness in the explorer's share price has created a "buying opportunity", argued Goldman Sachs' scribes, who also claimed "the quality of the company's assets should continue to encourage its M&A attractiveness".

There was some good news for Peter Jones. The Dragons' Den entrepreneur is the non-executive deputy chairman and 42 per cent shareholder of retailer Expansys, which was pushed up 0.12p to 1.18p on Aim after announcing its subsidiary PJMedia has won a contract to provide top-up services for Everything Everywhere, the joint venture between Orange and T-Mobile.