Market Report: MFI surges on talk of predator waiting to swoop

City traders clearly have short memories. Only two months ago many got their fingers badly burnt when, as opposed to announcing a takeover approach, MFI unveiled a horrendous profits warning. Yesterday they piled into the furniture retailer convinced that some form of corporate action is on the way.

City traders clearly have short memories. Only two months ago many got their fingers badly burnt when, as opposed to announcing a takeover approach, MFI unveiled a horrendous profits warning. Yesterday they piled into the furniture retailer convinced that some form of corporate action is on the way.

Such was traders' enthusiasm that MFI closed 5.3 per cent better, up 5.5p to 108p, as a massive 95 million shares changed hands. Two theories were put forward by market players on MFI. The first talked of an outright bid for the furniture retailer with private equity either backing a move by the management team to take the group private or going it alone. Such a deal could see MFI shareholders getting well over 150p a share.

Others suggested that it was the group's Howden building materials division that caught the eye of a predator. Kingfisher was talked of as most likely to be interested in the business from among the retailers, with private equity again in the frame. Analysts have long argued that Howden is the best part of MFI's business and have argued that it could be worth up to £1bn. But the sale of the unit would not be a straightforward matter for MFI. Its retail operations have a shared manufacturing base with Howden.

September's profits warning from MFI sent its shares plummeting as bulls rushed for the exit. The company blamed the setback on supply chain problems, which had caused incorrect products to be delivered to some customers. But MFI also faces longer-term problems. The most dangerous of these is growing competition from the likes of Homebase, B&Q and Argos.

Elsewhere in the retail sector, Evolution Securities downgraded both Moss Bros, unchanged at 106p, and T ed Baker, down 8.5p to 481.5p to "reduce" from "add". Both stocks have been very strong performers this year but Evolution believes they have gone far enough for now. On Moss Bros, the broker urged investors to ignore recent rumours of a takeover bid at the 120p level.

Citigroup got investors interested in the property sector. Slough Estates added 8p to 469.25p after the broker upgraded its rating to "buy" from "hold". It was also bullish about Great Portland Estates, up 13p to 314.75p, and Liberty International, 5.5p higher at 882.5p.

Manchester United added 0.5p to 285.5p on speculation that Malcolm Glazer plans to sweeten his 300p a share offer to the Irish tycoons John Magnier and JP McManus.

Among technology stocks, ARM Holdings fell 0.5p to 98.75p in response to a downgrade by Merrill Lynch. Slashing its recommendation to "neutral" from "buy", the broker said that ARM will fare better than most semiconductor players next year but argued this is already factored into the group's valuation.

Meanwhile, the FTSE 100 reversed early losses and closed 9 points higher at 4,728 after American stocks put on a strong performance in early trading on Wall Street. Investors across the Atlantic took the view that four more years of a Bush administration will mean further tax cuts.

Lower down the pecking order, Deal Group Media rose 1.25p to 11.5p after the online advertising specialist completed a series of bullish presentations to institutional investors. Regal Petroleum gained 7.5p to 356p on news that Frank Timis, its chairman, had acquired 150,000 shares at 350p. Mr Timis controls 7.8 per cent of the oil explorer.

Melrose Resources was not so lucky. Its stock dropped 28.5p to 227.5p after the group was forced to plug two of its wells, one in Bulgaria and the other at its site in Egypt. Homestyle ticked 0.5p higher to 108p as Formal Property Management Services, a mysterious Jersey-based company, bought a further 700,000 shares, thereby raising its stake to 9.4 million, or 14 per cent of the company.

Market professionals were puzzled to see Optursa Management, a hedge fund, raise its stake in MyTravel, 0.03p better at 4.33p. The tour operator is in the process of completing a debt-for-equity swap which will be highly dilutive of current shareholders. Market professionals reckon the refinancing will leave MyTravel stock worth less that 2p.

Flying Brands improved 5p to 221p on talk of strong trading at the group. Word has it the mail order firm has enjoyed record sales during the summer and autumn, which may help it top market expectations at its next results.

Finally, investors were last night keenly awaiting today's float of Mavinwood. The company is backed by Rowland Capital, run by the son of the late tycoon Tiny Rowland, and Lord Ashcroft, the millionaire Tory financier. Mavinwood hopes to raise £2.1m in a placing being put together by Seymour Pierce and will use the cash to invest in the support services sector.