UK/Euro Financial Market Daily Evening Briefing 18-06-2007

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London shares close lower as bid talk at ICI fails to lift market

Leading shares closed weaker in quiet trade as a lack of fresh direction from Wall Street left investors largely sidelined despite fresh M&A news surrounding ICI.
   
At the close, the FTSE 100 index was off 28.9 points at 6,703.5, down from the session high of 6,751.3, while the FTSE 250 index finished down 52.1 points at 11,947.50. The other indices closed mixed. Volume was moderate, with 2.34 bln shares trading in 504,845 deals.
   
Meanwhile over on Wall Street a short while ago the DJIA was off 7.5 at 13,632.5, with the S&P 500 down 0.1 at 1,532.81.
   
Wall Street retreated modestly Monday after three days of solid gains, as investors eyed swings in Treasury bond yields amid lingering questions about inflation.
   
The pause in stocks follows last week's sharp rally, when tame inflation data pushed the Dow Jones industrial average to its biggest three-day point gain since November 2004. However, with little significant economic data due at the start of the week, investors are left searching for a catalyst to extend the rally.
   
In London, ICI was the day's top news, up nearly 16 pct or 85-1/2 pence to 634-1/2, on news it had rejected a 7.2 bln stg all-cash bid from its Dutch rival Akzo Nobel.
   
In reaction, broker comment was mixed, with Evolution Securities saying: "It was not a stretch to assume that 700 pence is achievable" for ICI.
   
James Knight of Collins Stewart, meanwhile, believes that 6.50 stg was a more likely ceiling for Akzo's ICI offer.
   
"I can't see anyone else who has the unique position of the financial firepower to make a bid, as well as the synergy opportunities that come with putting two coatings businesses together," he said.
   
The news was seen as the first salvo in a keenly awaited bidding battle for the prized UK chemicals giant.

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Meanwhile bid talk also fuelled BHP Billiton, up 11 pence to 1,369, amid speculation the mining company will revive plans for a 20.2 bln stg takeover of aluminium producer Alcoa when incoming chief executive Marius Kloppers takes over in October, the Times reported.
   
Elsewhere, a broker upgrade helped SABMiller take on 17 to 1,278, as Merrill Lynch upgraded the company to 'buy' from 'neutral' with a price target of 1,400 price as it feels the shares offer a good entry point after recent underperformance.
   
In other news, Scottish & Newcastle rose 4-1/2 pence to 640, a five-year high, after Merrill Lynch upgraded the UK brewer to 'buy' from 'neutral', saying it is confident a tie-up with Carlsberg will eventually come to pass.
   
The broker also lifted its price target on the brewer to 700 pence from 640 pence.
   
At one stage, the stock rose as high as 656.5 pence, its best level since June 2002.
   
"We believe the most likely scenario is that Carlsberg buys S&N," said the broker. "This has been made possible by Carlsberg's strong share price performance, and the revised Carlsberg Foundation charter which allows Carlsberg to raise around 5 bln stg equity at a share price of 650 dkr."
   
Remaining on the upside, shares in Rolls Royce Group took on 5-1/4 pence to 552 after announcing it has won the largest ever engine order for its civil aerospace business with a 5.6 bln usd deal from Qatar Airways.
   
The order is for Trent XWB engines to power Qatar's new fleet of Airbus A350 XWB twin jets, with deliveries starting in 2013, the engine manufacturer announced at the Paris Air Show.
   
In broker reaction, HSBC reiterated its 'overweight' rating and 635 pence target.
   
Turning to the downside, BAE Systems slipped 6-1/2 to 443-3/4 on news that the Hungarian government is to investigate orders for Gripen fighter jets awarded to a consortium of the UK's defence contractor and Sweden's Saab in 2001, said Defence Minister Imre Szekeres.

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Among the 250's, Carpetright was one of the the biggest fallers, down 77 at 1,263, as investors cashed in some profits after sharp gains Friday.
   
This followed the news Carpetright's founder, chairman and chief executive, Lord Harris of Peckham, had been granted permission by the board to explore a possible bid.
   
However, Panmure maintained a 'buy' rating and a 1,350 pence target on the group.
   
Elsewhere, Carphone Warehouse dipped 10 to 343-1/2 after Goldman Sachs downgraded its stance to 'neutral' from 'buy' on valuation grounds.
   
It warned that there could be downside risk to short-term earnings if it launched an aggressive promotion of broadband for Christmas.
   
On the upside, Tullow Oil surged 51-1/4 pence higher to 460-1/4 after the company reported a "significant" oil find in Ghana, prompting KBC Peel Hunt to upgrade its rating to 'hold' from 'reduce'. 

Diary of Events

For a diary of key financial and corporate events in the UK this week, click here

UK Small Cap Report

For a summmary of today's trading on the FTSE 250 and the AIM, click here

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Paris shares close lower on profit-taking prompted by Wall St weakness

The CAC-40 index ended down 18.13 points or 0.30 pct at 6,087.15 points on total volume of 4 bln eur and dealers said a widely anticipated general election victory for the right yesterday had no impact. 29 CAC-40 stocks ended down and 11 higher. On the Matif, July CAC-40 futures were trading down 12 points at 6,106.
   
President Nicolas Sarkozy's UMP party won a solid majority in yesterday's legislative election, with 314 seats in the 577-member National Assembly, providing a strong base with which to implement proposed economic reforms.
   
The strongest performances came from small and mid cap stocks, reacting to isolated items of news. Completel added 2.35 or 8.67 pct to close at 29.45 eur, following the announcement of a partnership with Bouygues Telecom to launch a joint fixed-mobile offering for business clients.
   
A Paris-based analyst said the stock was definitely reacting to the news, as the deal will allow Completel to maintain its position in the business market. But he also stressed that the rise was being intensified by speculation that Completel might be a future takeover target for Bouygues Telecom.
   
Also among small caps, healthcare provider Orpea rose 2.04 or 2.59 pct to 80.75, boosted by a price target hike at Exane BNP Paribas to 100 eur from 82 eur.
   
In a note to clients, Exane analysts said they had decided to integrate future acquisitions into their valuation method, to reflect "the recurring nature of such deals," which they say should provide additional value of some 15 eur per share.
       
Among the main risers in the CAC-40, Alstom added 1.19 or 1.00 pct to 120.61, lifted by a string of positive news on orders. Over the weekend the group signed a 310 mln eur contract with Algerian state-owned gas and electricity company Sonelgaz, to build a gas-fired power station in Relizan. This morning it also announced a 27.4 mln eur deal to supply a further 13 tram carriages for the latest tramline in the city of Lyon, south-east France.
   
In parallel, French daily Les Echos reported today that French national rail operator SNCF is seeking to renew its high speed TGV and regional TER trains and will launch two calls for bids by the end of next year for contracts worth several billion euros.
       
Construction issues were in favour, with Lafarge up 1.98 or 1.51 pct at 133.00 and Saint-Gobain up 0.83 or 1.00 pct at 83.71.
   
On the downside, Club Med shares slipped 2.00 or 3.71 pct to 51.85, after Goldman Sachs placed the stock on its Conviction Sell list.
   
Analysts at Goldmans said the share's recent rally meant its valuation already integrates the upscale shift in the group's business model. They also highlighted the strong risk of a slowdown in bookings in the second half of the year.
       
Unibail and Air France-KLM, which joined the CAC-40 index today, both slipped back after last week's strong rally. Air France-KLM was trading down 0.68 or 1.85 pct at 36.10 after announcing the purchase of two additional Airbus A380s and 18 A320 Family aircraft at the first day of the Paris Air Show.
   
Airbus parent EADS saw its shares fall 0.16 or 0.66 pct to 24.12 after warning that any further rise in the euro could force additional restructuring measures at the plane maker.
   
Unibail holdings dropped 5.60 or 2.72 pct to 200.31. Other property stocks appeared to be out of favour, with Klepierre down 2.77 or 2.06 pct at 131.39.

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German shares close slightly higher on first day of new weightings

The DAX closed 5.48 points or 0.07 pct higher at 8,036.12, having traded between a high of 8,095.76 and a low of 8,013.56 today. The MDAX gained 36.82 points or 0.33 pct to 11,126.37, while the TecDAX was down 7.54 points or 0.80 pct at 930.03.
   
DAX futures were 19.00 points or 0.23 pct higher at 8,122.00, while bund futures slipped 0.17 points or 0.15 pct to 110.04.
   
Linde led blue chips higer, adding 1.80 eur or 2.19 pct to 84.10. BASF followed, rising 1.99 eur or 2.16 pct to 94.03 on higher sector valuation following news that Akzo Nobel NV's 7.2 bln stg bid for ICI had been rejected.
   
ThyssenKrupp was up 0.90 eur or 2.00 pct at 45.82, while SAP gained 0.72 eur or 1.97 pct to 37.28. Infineon was also among the top performers, adding 0.15 eur or 1.24 pct to 12.20.
   
At the other end, Merck lost 3.55 eur or 3.33 pct to 103.00, due to lower demand on its first day of trading on the large cap index.
   
Hypo Real Estate dropped 0.93 eur or 1.84 pct to 49.50, while Fresenius Care declined 0.58 eur or 1.61 pct to 35.27.
   
Deutsche Boerse also lost 1.39 eur or 1.56 pct to 87.60.
   
Technology giant Siemens dropped 1.41 eur or 1.32 pct to 105.77 amid talk it is once again casting an eye over Invensys.
  
A spokesman for Siemens said the company does not comment on market rumours. He added that speculation surrounding Siemens and Invensys had recurred regularly over the past months and was little surprising.
  
Over on the MDAX, SGL Carbon advanced 2.35 eur or 7.83 pct to 32.36 as the index's strongest gainer. Its shares were buoyed by a bullish note from Merrill Lynch on Friday and by traders today covering their short trades after Friday's triple witching.
   
Meanwhile, Gagfah lost 0.39 eur or 2.19 pct to 17.38.
   
TecDAX-listed Rofin Sinar was the best performer on its index, gaining 1.41 pct to 50.90. Kontron, meanwhile, lost 3.77 pct to 14.03.

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Amsterdam shares close slightly lower on negative Wall Street

The AEX closed 0.64 point or 0.12 pct lower at 551.27, after opening at 552.06 and trading in the range of 549.76 - 553.06. Government bonds traded mainly higher and the euro stood at 1.3400 usd versus 1.3307 usd late Friday.
   
Rodamco Europe led decliners, falling 3.14 pct to 103.91 after the company agreed to buy a French shopping and leisure centre development and as hopes of a bidding war between Unibail and Westfield faded.
   
Heineken shed 1.37 pct to 43.90  following a downgrade at Merrill Lynch. On the midcap, Corio fell 1.77 pct to 61.57.
   
On the staffing front, Randstad slid 1.23 pct to 58.65 with Rabo Securities noting that rival Adecco is, after acquiring German staffing group Tuja, "closer to market leader Randstad." By contrast, Vedior rose 0.22 pct to 22.71 eur after the company bought a UK hospitality staffing company, and USG People added 2.20 pct at 33.93.
   
Among financials, Fortis fell 1.17 pct to 30.39, and ABN Amro slipped 0.50 pct to 35.73 while Aegon added 0.13 pct at 15.11 and ING lifted 0.60 pct to 33.36 after the group agreed to buy Korea's Landmark Investment Management Co.
   
Akzo Nobel was down 1.04 pct to 60.94 eur after the company confirmed it had approached ICI with a 7.2 bln stg cash bid that was rejected. The share was also downgraded and its price target reduced at Rabo Securities. By contrast, DSM led AEX gainers, putting on 1.74 pct to 37.51.
   
Philips was off 0.44 pct to 31.42 and Ordina weakened 1.28 pct to 16.19 after its price target was lowered at ABN Amro, while ASML went up 1.70 pct to 20.36, with investors still buoyed by last week's positive broker notes and disregarding Dresdner Kleinwort saying the company has been "talking down" its Q2 order intake to 30 systems.
   
Royal Dutch Shell recorded the most volume, 0.14 pct lower to 29.64 while fellow oil stock Fugro went up 2.01 pct to 45.24 ahead of its trading update expected Friday.
   
Midcappers Boskalis Westminster and Stork led gainers, rising 3.58 pct to 29.50, and up 2.23 pct to 42.21 respectively. Arcelor Mittal was 0.91 pct higher to 48.61.

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