Bid speculation drives Lloyds and Exel

Lloyds TSB provided the main talking point in a firm day of trading in London on Tuesday as a vague rumour floated round that either Bear Stearns, the US group or Spanish group Banco Bilbao Vizcaya (BBVA) could be interested in buying the company.

Traders gave little credence to the BBVA story, saying that while it probably had to move after BBVA’s rival Santander Central Hispano bought Abbey National last year, it was probably not big enough to take on Lloyds.

However, others put the gains down to more tangible factors. Firstly, ING upgraded the stock, moving to ’buy’ from ’hold’. The broker said the dividend was looking increasingly secure, even though the market has long been pricing in a cut.

Analyst Bruce Packard said that if Lloyds were to grow earnings per share by 5 per cent, in five years time it will have recovered its 1.5 times dividend cover target.

He argued that the group could even have excess capital, which could be used on small, earnings-enhancing acquisitions or share buybacks: “Both of these would accelerate earnings growth towards the bank’s target cover ratio”.

Second, upbeat results from Aviva boosted sentiment in the life assurance sector, to which Lloyds is exposed via Scottish Widows. Lloyds shares closed up 3.1 per cent at 486p, a two year high.

The FTSE 100 was 0.6 per cent higher at 4,843.2 while the mid-cap FTSE 250 index was up 0.4 per cent at 7,098.5. Volume was 3.1bn.

Aviva rose 3.1 per cent to 693p after the insurer posted a 9 per cent increase in full-year life and pension sales, on an annual premium equivalent basis. The APE figure, the industry’s key performance indicator, was ahead of expectations and analysts said that Aviva’s confidence about the prospects of the UK long-term savings market was seen as positive for the rest of the sector. See more on Aviva

Legal & General was up 2.2 per cent at 116.25p, Prudential added 1.9 per cent to 456.5p, and Friends Provident was 1.9 per cent higher at 161.5p.

Rumours that fund manager HHG could be a potential bid candidate refused to go away and the shares closed up 2.5 per cent at 62.5p.

Cable & Wireless gained 5.5 per cent at 119p after the altnet telecoms group reported third quarter revenues of £808m and said its restructuring plans were on schedule. See more on Cable & Wireless

WPP was 2.5 per cent firmer at 563p after the European Commission cleared the advertising group’s acquisition of smaller US rival Grey Group. WPP said it expected the transaction to be completed by early March. See more on WPP

Exel, the logistics group, added 4.8 per cent to 782.5p on talk that US group United Parcel Service or Deutsche Post was considering a bid. ING also tipped the stock to outperform in 2005 saying that as the worldwide leader in contract logistics, it was very well placed to benefit from the global recovery.

Tesco, the country’s largest supermarket chain, lost 1.1 per cent to 307.75p despite talk that there had been some switching from Carrefour, the French supermarket chain.

GWR Group and Capital Radio, set to complete their merger later this year, recovered from early falls to finish up 1.6 per cent at 256p and 0.2 per cent to 434p respectively as dealers digested news of their trading updates.

GWR forecast January like-for-like total group revenues would be down 4 per cent, while Capital said January revenues would be flat. The media team at Numis Securities nevertheless stuck with their earnings estimates and viewed the weak fourth quarter trading as a blip.

Northgate Information Solutions, the software group, added 6.1 per cent to 65.25p on talk it was a potential bid candidate.

ICAP added 4.4 per cent to 277.5p as upbeat sentiment got behind the emerging inter-broker dealing sector. Aim-listed Trio Holdings, which specialises in UK local authority debt, was up 11.9 per cent at 28.25p as it received an offer from a private equity group

Furthermore, US broker GFI is expected to raise around $100m via an initial public offering this week with a price/earnings ratio of around 18-20 times earnings.

Neil Welch, an analyst at Shore Capital, pointed out that ICAP traded on a ratio of 15.4 times.

SSL International, the rubber products maker, lost 2.2 per cent to 320.75p on talk that several potential bidders had cooled on the idea of making a bid for the company.

The mining sector was hit by profit taking after its recent strong run with Rio Tinto down 1.8 per cent at £16.60, Anglo American was 0.6 per cent weaker at £12.45, Antofagasta off 0.7 per cent at £11.75 while BHP Billiton edged 0.2 per cent lower to 651.5p.

Thorntons fell 2.3 per cent to 146.5p as the chocolate retailer issued a half-year trading update which showed slightly disappointing sales growth from its own shops offset by stronger sales to third parties. Total company sales increased by 9.5 per cent to £119.7m for the 28 weeks to January 8. Thorntons’ own shops like-for-like sales increased by 0.8 per cent but commercial sales accounted for almost all of the increase in group sales. Thorntons products sold to other retailers increased by £9.8m to £13.4m, an increase of 270 per cent on last year while private label commercial sales rose by 2.7 per cent to £9.1m.

Boots was unchanged at 676.5p as the health and beauty retailer announced plans to raise an estimated £300m through the sale and leaseback of some of its 1,400 stores. Some experts warned that a sale and leaseback could put pressure on Boots’ credit rating, because bondholders often see property ownership as a sign of financial strength. See more on Boots

Eurotunnel rose 1.5 per cent to 17.25p as the Channel Tunnel operator reported a 4 per cent fall in operating revenues to £538m in 2004. See more on Eurotunnel.

Ahead of its AGM statement on Wednesday covering the Christmas trading period, Future Network was unchanged at 76p after the consumer magazine group announced the acquisition of A&S publishing for £5.95m. A&S publishes 11 motoring titles and reported pre-tax profits of £0.1m in 2003.

Analysts at Charles Stanley said the takeout price represented a massive multiple based on historic earnings but the deal was expected to be earnings enhancing if costs were taken out and planned synergies were achieved.

“Future Network has set out its ambition to double in size over a four year period, so acquisitions are an expected part in this,” said Paul Bates of Charles Stanley: “For those in the market looking for a tie-up between Future Network and struggling Highbury House, this deal will add a few drops more fuel to the fire, as the overlap increases.” Highbury House rose 5.4 per cent to 7.4p.

News that Robert Boardman, formerly finance director at Durlacher and Altium Capital, had joined Stanelco as its finance director raised investors’ interest yesterday. Mr Boardman’s previous experience with Durlacher where he oversaw a big equity issue led to speculation that Stanelco, 1.5 per cent lower at 8p, plans a similar rights issue.

Stanelco has adapted radio frequency technology to food packaging. Trials with Asda are being run currently and five other companies are rumoured to be interested.

Stanelco denied it was looking for a rights issue and said Mr Boardman would help take the company on to realise its full potential.

Ricardo added another a further 3.5 per cent to 266.5p on continued talk that the engineering group would soon be subject to a takeover bid. The shares have risen 22.5 per cent since the start of the year.

Psion, the technology company, was up 2.7 per cent at 56½p after Panmure Gordon placed 28m shares at 55p on behalf of Phoenix Asset Management Partners, Psion’s major shareholder with a 13.1 per cent stake. The sale took just 25 minutes.

NCC Group rose 4.9 per cent to 204.5p as the provider of assurance services announced an initial interim dividend of 0.75p per share and a 21 per cent increase in group operating profits to £2.8m in the six months to November 30.

Brewin Dolphin placed a 9.7 per cent stake in NCC at 200p a share on behalf of Barclays Private Investors with institutional investors, clearing a stock overhang.

Newmark Security jumped 14.1 per cent to 1.8p as the security products and services supplier said it expected to complete several potentially big orders in the retail, hospital and construction sectors in 2005-06.

Newmark said it expected a significant rise in revenue next year with contracts being sought with security infrastructure, defence companies and government facilities as well as a big bank that planned to upgrade its entire security infrastructure.

A profit warning just two days before its preliminary results dragged Sanctuary Group 14.4 per cent lower to 40p. The artist management and recorded music group said its book publishing business would generate an operating loss of £2.1m and the disposal of the Cloud 9 television business would require an £11.4m provision. Analysts were concerned that more profit holes might be found.

Alltracel Pharmaceuticals rose 2.8 per cent to 27.75p after research from University College, Dublin reported progress on its cholesterol-reducing technology. The clinical trial programme is scheduled to be complete this quarter.

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