Home Retail Group turns positive on takeover talk

That was the question on traders' lips today, with both private-equity firms and trade buyers mooted as potential bidders.

Now that venture capital is once again on the prowl for retail deals, the Argos and Homebase owner could well spark their interest. Its shares have been unloved by investors, underperforming the rest of the industry by almost a third in the past 12 months. With credit markets and confidence recovering, this could have left the company looking tempting for a takeover.

"There are few better possible buy-outs in the retail sector," said analysts at Société Générale. "While we believe a bid from private equity is more likely, as an alternative, there is sound rationale for a trade buyer — such as a food retailer — seeking to secure market leadership in the UK general merchandise sector."

The French bank reckons 385p would be a fair bid price, and rates the shares a buy. They gained 4p to 260p on the takeover speculation.

Shares in London were in positive territory, thanks to a strong showing from the water and sewerage companies. The FTSE 100 added 17.22 points to 5205.74. The rise coincided with UBS declaring that the market's bull run isn't over. The recent drop in the index has been the product of a triple-whammy of woes: fears of fiscal tightening by China, the prospect of US bank reforms and Greek economic problems. But UBS strategist Nick Nelson said: "Each of these individual events will most likely turn out to be manageable and, in themselves, will not derail the economic recovery."

Severn Trent was the best-performing blue chip, 42p stronger at 1167p, and rival United Utilities climbed 19p to 555½p. The spotlight was cast on the sector by reports that rival Northumbrian Water could be taken over by a Canadian pension fund. Shares in the FTSE 250 group shot up 25¾p to 284¼p on speculation that the Ontario Teachers' Pension Plan may offer 325p a pop for the group. The pension fund already has a 27% stake in the business. The talk also pushed up mid-cap peer Pennon Group 26p to 540½p.

Elsewhere, Schroders was the biggest dud on the top tier, falling 17p to 1229p, thanks to a downgrade from Credit Suisse. The bank has a neutral rating on the shares, warning of a slowdown in the fourth quarter.

Most of the City met news of Dalton Philips's appointment as Wm Morrison chief executive with a "Who he?" But today analysts at Execution came out as fans. The stockbroker noted that Philips's former colleagues at Wal-Mart Germany have given him a big thumbs up. Although Execution says that it is still a "massive move", it has slapped a buy rating on the supermarket chain's shares and raised its price target to 320p in response.

Luxury lovers unwilling to give up their couture cashmere helped textiles group Dawson International to report a strong final quarter. Shares in the AIM-listed company rose 0.5p or 29% to 2.3p after it said it should beat market forecasts for last year, although it should still make a loss.

Trader Talk

Multi-millionaire hedge-fund investor Crispin Odey is betting against embattled sports store JJB Sports. The chain had a woeful 2009, with sales down 24% but recent figures have shown a slow improvement. All the same, Odey has shorted 0.48% of the stock in the company being at present highly cautious on the UK's economic prospects this year. Investors are also sceptical that JJB's turnaround can be sustained and broker Kate Heseltine at Seymour Pierce said: "We feel management's optimism at passing break-even in the next year is over-ambitious."

Charlie Parker, citywire.co.uk

Tomorrow's Agenda

High oil prices, growth in crude production and greater efficiency will help BP top post an 80% surge in quarterly profits to $4.7 billion (£2.9 billion), analysts predict. Andrew Whittock, energy analyst at Oriel Securities, said: "The general picture is that BP has all its main plants and fields operating now and is benefiting from a higher oil price." The oil major's new chairman Carl-Henric Svanberg is expected to outline a boardroom shake-up.

Portfolio

BUY: ITV
Panmure Gordon reckons broadcaster ITV's appointment of ex-Royal Mail boss Adam Crozier as CEO is "positive" and says the stock is worth snapping up. The broker says Crozier is good because he will be an "agent for change" at the recession-hit firm.

SELL: BOVIS HOMES
KBC Peel Hunt says it's time for investors in housebuilder Bovis Homes to put their shares on the market. Bovis cut costs deeper than most during the recession but KBC analysts say it must now rehire workers and costs will increase potentially hitting margins.

HOLD: ASTRAZENECA
Citigroup advises investors to hang onto shares in Britain's number two drugmaker, AstraZeneca. Last week it posted full-year earnings which, Citi analysts say, revealed the scale of cash-generating opportunities for the pharmaceuticals sector.