Prudential closed lower Wednesday as the London market shrugged off the latest slump in Chinese equities.
The life assurer fell 1 per cent to 756½p as a “sell” note from ING advised clients to switch to rival Aviva, down 0.3 per cent to 800p. ING argued that the mooted break up of Prudential was not as straightforward as some believe.
Kevin Ryan, analyst, wrote: “Prudential’s shares have soared above the indicative 707p-per-share offer made by Aviva last year and now look expensive. Much of this reflects excitement that a break-up is imminent.
“While we suspect a break-up could see the shares rise to 936p, we think it unlikely that management will give such a project serious consideration until the UK orphan asset issue has been settled,” Mr Ryan said. Prudential is seeking to unlock the value of its orphan assets – spare capital in its with-profits funds – but must agree terms with regulators. Mr Ryan said such a settlement could be as much as two years away.
In the wider market, the FTSE 100 clawed back an intra-day loss of 73 points to end just 4.4 points lower. It closed at 6,602.1, while the mid-cap FTSE250 lost 83.5 points, or 0.7 per cent, to 12,023.2.
Property stocks tracked gains in the US real estate sector, as Land Securities rose 1.8 per cent to £18.88 and British Land firmed 1.8 per cent to £14.25.
Dealers cited the latest mergers and acquisitions developments in the US, where Tishman Speyer, the owner of New York’s Chrysler Center, and Lehman Brothers, are paying $22.2bn for Archstone-Smith, the second largest US apartment owner.
Imperial Tobacco rose 2.2 per cent to £21.95, making it the biggest blue-chip riser, amid suggestions that a dispute between the two halves of a private equity consortium bidding for Spain’s Altadis could scupper that bid and leave the way clear for the UK group, should it raise its offer.
Capita Group, the outsourcing specialist, gained 1.3 per cent to 728p as it won a £580m contract with Resolution, while the closed-life assurance fund consolidator lost 2.8 per cent to 627p as its began trading ex-dividend.
GlaxoSmithKline, sharply lower in intra-day trading, ended 1.7 per cent higher at £13.28 after the pharmaceuticals group insisted in a letter to The Lancet medical journal that its diabetes drug Avandia was safe.
Earlier, Merrill Lynch had slashed its stance on Glaxo from “neutral” to “sell”, insisting the loss in confidence in Avandia, which has been linked to heart problems, could take years to resolve.
Analyst Graham Parry wrote: “The overhang to both Avandia sales and Glaxo’s share price is likely to remain for the foreseeable future. The stock likely will remain under pressure as both Avandia safety and Glaxo’s reputation are placed under intense public scrutiny”.
Standard Life, which has risen by a third since its float a year ago, gained 0.8 per cent to 342¾p, in spite of JPMorgan initiating coverage on the life assurer with an “underweight” rating.
Analyst Andrew Hughes wrote: “Our view is that Standard Life is currently overvalued based on the prospects for the self- invested pension plan market”.
He said that while “significant value could be unlocked” should the Edinburgh-based group sell its Canadian business, healthcare operation and part of its back book, management was unlikely to do so.
Vodafone continued its strong run, up a further 0.3 per cent to 160p, as a host of investment banks, including Goldman Sachs, Deutsche Bank and Citigroup, upgraded earnings and price target forecasts.
However, the Citigroup research note also scotched rumours of a possible break-up of the telecoms group, which reported higher operating profits on Tuesday.
British Energy lost 5.6 per cent to 537p as figures from the nuclear power group were overshadowed by news that the government would sell part of its shareholding. A bookbuilding exercise, managed by Citigroup, Merrill Lynch and Deutsche Bank, will conclude today and should reduce the government’s stake from 64 per cent to 39 per cent via the sale of 400m shares.