Traders hear speculation defence group could be in sights of Lockheed Martin after EADS merger collapse
BAE Systems, whose planned merger with Airbus maker EADS failed to get off the ground, is now a prime target for bid speculation.
The latest talk was that US group Lockheed Martin could be interested in the UK defence group, and that was enough to push its shares 7.7p higher to 319.7p, although they came off their best levels.
Still with defence Chemring, which received a bid proposal from private equity group Carlyle and also issued a couple of profit warnings, was back in favour after an update which showed trading had not got any worse. The Carlyle move came to nothing, although dealers were still hoping for further private equity interest in the business.
The company said its 2012 performance had been extremely disappointing but would be in line with the recent warning. New chief executive Mark Papworth will present his thoughts on the company's future in January at its full year results. Chemring's shares climbed 8.2p to 238.2p and Andrew Gollan at Investec said:
Chemring's trading update provides a degree of clarity and comfort (on revenue and net debt) after what has been a very difficult year. A combination of more challenging market conditions and a poor operational performance across a number of businesses has led to a material decline in earnings. Looking forward, end markets are unlikely to offer relief, but we believe our forecasts have been reset conservatively and upside exists from improving operational delivery. We resume coverage with a new price target of 280p.
Overall, banks were among the leading risers, as markets gave a cautiously positive reaction to the late night agreement on Greece's aid package, with the FTSE 100 closing 12.99 points higher at 5799.71. Downgrades from the OECD did not help the general mood.
Royal Bank of Scotland rose 10p to 295.1p, also benefiting after an upgrade from UBS. It raised its rating from neutral to buy in the wake of Monday's announcement of the new Bank of England governor.
Lloyds Banking Group added 1.315p to 46.415p and Barclays - hit on Monday by news that Qatar was cashing in the last of its warrants in the bank - ended 3.15p better at 243.65p.
But Severn Trent slipped 2p to £15.54 despite a 1.6% rise in half year profits, as a 5.2% price rise offset lower usage during the wet summer. It said it was on track to meet full year earnings, and it has also said it was minded to accept changes to its operating licence, although it wants further clarity from regulator Ofwat.
Capita climbed 23p to 751p after the outsourcing group was named as preferred bidder for an educational services contract in Staffordshire, a 20 year joint venture which marks its biggest ever deal.
But the company is expected to lose out on its Criminal Records Bureau contract to Tata Consulting, with an announcement expected as soon as Wednesday.
Reckitt Benckiser, up 41p to £39.19, saw off rival Bayer to sign an agreement to buy US vitamins group Schiff Nutrition for $1.4bn but not everyone believes it is a good deal. Analysts at Exane BNP Paribas said:
If you are going to enter the vitamins industry, Schiff doesn't seem to be the worst vehicle to do it through (and if it all goes wrong, small enough to swallow). However, the vitamins industry is not an easy place to do business and we would rather Reckitt pay 20 times enterprise value/earnings for a standard over-the-counter healthcare business than 16.5 times for a Schiff. Better still, give the cash back to shareholders.
We would not be surprised at all if the primary reason for the apparent change in view towards vitamins is driven by a need to buy profits (ala SSL), as at least two generics look set to compete with Reckitt's highly profitable US Mucinex franchise in 2013. Whether Schiff will truly enrich Reckitt's portfolio over time is far from clear in our view.
Among the mid-caps Mitchells & Butlers, the pubs group which has had its fair share of boardroom ructions recently, disappointed the City with its latest results.
It said full year profits rose from £387m to £395m, which it described as a resilient performance in challenging economic conditions as it restructured to improve its customer service.
But the figure was below expectations, and although the group - whose brands include All Bar One and Harvester - said it was well positioned for future growth, the outlook was not exactly bright. Its shares closed 18.9p lower at 312.1p.
Lower down the market engineering services group Renew Holdings rose 6p to 88p after better than expected full year profits of £10m. Numis said:
We initiate coverage of Renew on the back of a good set of full year results, which is testament to the success of the model to date and also what we see as the attractive outlook the company faces. We also outline a target price of 110p which offers good upside in the share price - even though at this target price Renew would only trade in line with new-build companies in the built environment (where conditions are presently more challenging), and therefore still a discount to other built environment related services companies. We initiate with a buy recommendation.
Finally Falklands Oil & Gas fell 48% to 32.75p after it abandoned its Scotia exploration well in the south basin after disappointing results.
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