Centrica gets bid boost but miners undermine FTSE

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Centrica became the latest company to be dragged through the rumour mill, but the wider London market ended lower on Wednesday as mining stocks fell following results from BHP Billiton.

The utility rose 3.8 per cent to 252¾p on heavy trading volume of 106m shares amid speculation the electricity and gas supplier was in merger talks. The speculation centred on Norsk Hydro, the Norwegian group after it admitted holding discussions earlier this year.

However, it was not the only name to be linked with a bid. Others mentioned by traders included Russia’s Gazprom, Royal Dutch Shell, Gaz de France and even BG Group, its former stablemate under the banner of British Gas.

Dealers expressed doubts about several of the candidates and suggested the number of companies linked indicated the talk was based on hope rather than more concrete foundations, even though Centrica has long been seen as eager to seal a venture with an upstream gas producer.

Dealers suggested talks with Norsk might concern a venture, not a bid, while Royal Dutch Shell was more likely to go for BG Group. Analysts also questioned whether Centrica was an attractive bid target, given the declining margins in the business.

Sceptics noted that Centrica was in the middle of a share buyback programme, which would rule out any possibility it was in takeover talks, although the last acquisition of shares was on August 19.

For its part, Centrica declined to comment and analysts attributed the gains to hedge fund trading.

The broader market continued to slide, with the FTSE 100 down 25 points, 0.5 per cent, at 5,275.2. However, the FTSE 250 index lost just 2.9 points to 7,704.5. Volume was an average 2.6bn shares.

With the market falling, investors turned to defensive stocks, with utilities Scottish Power and International Power up 2.1 per cent to 498¼p and 1.7 per cent to 166p respectively.

BHP Billiton, 3.7 per cent weaker at 804p, led the mining sector lower, even though the Anglo-Australian mining group reported a record full-year profit. As the news was largely expected, investors, instead focused on the company’s comments that the outlook for Europe, US and Japan remained challenging.

Fellow mining groups also traded lower with Antofagasta down 2.4 per cent at £14.56, Anglo American 2.7 per cent softer at £13.74 and Rio Tinto 3.4 per cent lower at £19.67.

Dixons fell 4.4 per cent to 152p as the stock traded without the right to the latest dividend payment. Credit Suisse First Boston said this was an opportunity for clients to switch from Dixons to Kesa Electricals, 0.3 per cent weaker at 258¼p, because Kesa had greater exposure outside the lacklustre UK market and was more likely to receive a takeover bid.

Other shares trading ex-dividend included Scottish & Southern Energy, which lost 2.3 per cent to 979½p, and Pearson, owner of the Financial Times, which fell 2.8 per cent to 673½p.

Tesco, the UK’s largest supermarket chain, added 0.5 per cent to 326¾p after Merrill Lynch raised its price target to 355p from 335p.

Tuesday’s well received figures from US group Hughes Supply sent UK plumbing peer Wolseley 2 per cent higher to £11.42.

Persimmon, the UK’s largest housebuilder, rose 2.7 per cent to another all-time high of 862½p as analysts reacted favourably to the group’s interim results. ABN Amro upped its target price to 891p from 836p.

The gains gave Persimmon a market capitalisation of £2.54bn and put it on the cusp of automatic entry to the FTSE 100 in the quarterly index review in two weeks’ time.

Henderson Group, the fund manager, marked time at 68p as it reported first-half profits more than quadrupled, thanks to as sales of products like hedge funds.

Laird Group, the electronic engineering group, was 2.1 per cent higher at 343p on reheated talk of a takeover approach, although the story has been around the market for several weeks.

Dana Petroleum traded 0.1 per cent lower at 850p after Bridgewell Securities cut its rating on the oil exploration firm to from “neutral” to “underweight” and advising investors take profit. At the same time, Dana confirmed it had received development approval for the Cavendish gas field in the North Sea.

Bodycote, the materials technology group, moved 2.4 per cent higher to a 39-month high of 211p, as investors continued to warm to its bullish interim results.

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