Collins Stewart soars as City itches for M&A

Rosamund Urwin
19 Mar 2010

Market Round-up

Could there be interest from overseas in Collins Stewart?

Many in the Square Mile believe that the stockbroking industry is ripe for consolidation, and today Collins Stewart was tipped as a prime candidate for a takeover.

“The shares look cheap — this is definitely one to watch,” said one dealer. Foreign bidders were thought most likely for the company whose shares put on 3½p to 79p, with the large European brokerages mentioned.

Broker BGC Partners was also deemed a possible predator. “It would be a nice fit,” another trader said.

Elsewhere, Icap gained 6.5p to 395.3p amid speculation that the inter-dealer broker may be close to finding a buyer for its cash equities business.

Analysts remained sceptical about a possible sale, however. Execution-Noble says that persuading anyone to splash out on the division would be tough, because the business is tipped to lose £18 million this year.

“We think the most likely solution to Icap's cash equities business would be an orderly wind down to cut losses,” said the broker. “It's worth noting that given the uncertainty, Icap has started seeing departures of its star performers.”

They also highlight the struggle of others in the sector to find a buyer.

Icap said last month that it was conducting a “broad-ranging strategic review of some of its cash equities businesses”, after a profits warning.

Shares in London hit a fresh 21-month high as good news from Lloyds Banking Group inspired a buying spree of financial stocks. The FTSE 100 index added 42.82 points to reach 5685.44.

Banks were the best performers on the top tier, led higher by Lloyds. Shares in the Black Horse bank shot up 5p to 60.6p when it said that it expects to return to profit this year after trading picked up and impairment charges fell.

It led some in the City to predict that the Government could sell some of its stake before the election.

Execution Noble's Joe Dickerson said: “Lloyds… should be strong today and we anticipate follow through. We flag the prospect of a pre-election placing in the stock.”

Fellow state-supported lender Royal Bank of Scotland climbed 2.7p to 44.7p, Barclays was 7.3p better at 360.2p and HSBC put on 4.4p at 685.4p.

BG Group rose again, 11p up at 1202p, on ongoing speculation that the oil explorer could receive a bid from mining giant BHP Billiton soon.

The wider financial sector was also better, with Resolution enjoying its last day among the big boys. The stock rose 1.5p to 74.9p despite Deutsche Bank trimming its target price for the shares from 100p to 90p.

Clive Cowdery's buyout vehicle will be ejected from the top flight tonight, with dual-listed South African lender Investec, 12p dearer at 547½p, taking its place. UBS and Deutsche Bank are both buyers of Investec's shares, with Deutsche raising its target from 500p to 550p today. Among the other winners, Whitbread was 28p stronger at 1547.6p after SocGen raised its rating on the hotels, restaurants and coffee chain group from sell to buy. Analysts at the French bank applauded the development of its Costa coffee stores and ability to keep prices up at Premier Inn.

But utility stocks were on the back foot, as investors turned to riskier punts. Centrica slipped 3.5p to 294.4p and Scottish & Southern Energy lost 9p to 1107.2p. Among AIM stocks, Cluff Gold was 3p stronger at 95p as the gold producer beat its forecasts on production at two of its mines. The West Africa-focused miner last month received a takeover approach.

Trader talk

Activist investor Julian Treger has trimmed his sizeable position in African Minerals, the development and mineral exploration company, disposing of 2.6 million shares leaving him with a stake of 5.3% or 12.3 million shares worth about £47.9 million. He was operating through his investment vehicle, the Audley European Opportunities Master Fund. African Minerals describes itself as a “socially responsible” organisation, with iron ore and base metal interests in Sierra Leone, West Africa. It is one of the country's biggest employers having invested there since 2003 with a large portfolio of mineral rights.

Monday's agenda

AG Barr, the soft-drink maker founded in 1875 which produces such delights as Irn-Bru and Tizer, posts preliminary results. Robin Barr, the only member of the founding family left on the board, will preside as chairman for the last time. He stands down in May when all ties with the founders will be cut. Analysts reckon AG Barr will post a pre-tax profit of about £27.2 million for the year, with earnings per share of about 51.1p.

Medical staff agency Healthcare Locums also posts preliminary results. The firm has enjoyed a higher demand for medical workers, especially in America but shareholders will have questions to ask about how Healthcare Locums expects to deal with impending belt-tightening as both the UK and US governments try to cut deficits.

Portfolio

BUY: GREGGS
Now is the time to buy shares in sausage-roll maker Greggs, says Evolution Securities, which likes the sound of the baker's “growth story”. It notes six million customers go to Greggs every week and likes the fact that the chain is trying to drive more store traffic by offering breakfast, coffee and pizza. “We know the Greggs format works, and the roll-out programme is about begin,” Evo says. It names a 590p target.

SELL: UMECO
Dump shares in Umeco, a firm that manages supply chains in the aerospace and defence sectors, says KBC Peel Hunt. Analysts note that part of the firm's work has been resilient in the downturn, and benefited from new contract wins but say that Umeco's composites division is continuing to experience weak demand in a number of key markets and reckon that uncertainty justifies a sell rating.

HOLD: HIKMA PHARMA
Investors should keep hold of shares in Dubai-based generic drugmaker Hikma Pharmaceuticals, say analysts at Panmure Gordon after the company announced preliminary results this week. The broker flags up the company's “rather guarded” outlook for the year ahead but reckons Hikma's drug investment strategy will pay off. Panmure analysts ramp up the target price from 530p to 580p and name the stock a hold.