Leading shares hit new two and a half month high despite worries about Fed moves
On a day when the market was searching for direction, things were livened up by a spate of merger speculation.
After the $16bn bid for US bourbon maker Jim Beam by Japan's Suntory, analysts were suggesting that *Diageo* or Pernod should step in to break up the party. Liberum's Pablo Zuanic said:
Conventional wisdom has it that no rival bids will emerge for Beam. We disagree. The international premium spirits business is about brands first, and about building scale and distribution muscle for those brands. So if one of the two leading bourbon companies comes up for sale and one believes in the export potential of Americana, then Diageo and Pernod should bid (especially when the other leading bourbon brand is controlled by a family structure; not that Brown Forman would not sell some day). For Pernod a bid may be a stretch, but we think a Diageo-led consortium bid is quite possible.
For Diageo assuming 3% cost of debt and 10% cost synergies, a bid 10% above Suntory's, would be 12% earnings per share accretive if it were to buy all of Beam. But Diageo could end up only buying half of Beam (the bourbon lines; Teacher's due to its Latin American strength; and the tequila lines), and the bid partner could keep the bulk of the rest.
Diageo ended the day 7.5p higher at 2003.5p.
Meanwhile UBS suggested *BSkyB*, up 31.5p at 871p, could be a possible target for Rupert Murdoch's Fox, which still owns 39% in the wake of News Corporation's failed bid in 2011, derailed by the phone hacking scandal. Analyst Polo Tang said:
Fox could revisit a merger of its European pay-TV assets to form Sky Europe. To overcome political resistance to a deal, BSkyB could remain listed but have its operating assets injected into Sky Europe in return for a majority stake in the larger entity.
Alternatively, the move to quad-play across Europe could also see BSkyB merge with either Vodafone UK or O2 UK. Such a deal could generate significant cost and revenue synergies that could be worth 248p-264p per share. Alternatively, Sky Europe could merge with either Vodafone or Telefonica to produce a European quad-play operator.
UBS moved its rating from neutral to buy and its price target from 880p to 1100p, saying the outlook was positive:
Overall, the deal talk helped push the *FTSE 100* 9.71 points higher to 6766.86, its highest level for two and a half months. But it was a fairly erratic trading day with the leading index falling as low as 6694 and rising to 6772 at its peak.
Worries about the US Federal Reserve trimming its $75bn a month bond buying programme unsettled investors, although better than expected UK inflation figures provided some support.
Pharmaceutical companies were in demand after positive comments at a JP Morgan healthcare conference.
*AstraZeneca* added 92p to 3755.5p after it said it was likely to return to growth faster than analysts had expected. It has been suffering from a number of key drugs losing patent protection amid concerns about its future pipeline.
Meanwhile *Shire*, which said it expected 2013 earnings growth to be at the top end of forecasts, rose 80p to £29.91.
*Hargreaves Lansdown* ended 23p higher at £15.08 as Morgan Stanley issued a positive note on the investment management group, saying it should benefit from new rules on customers paying for financial advice, known as the retail distribution review. Morgan Stanley moved its recommendation from equal weight to overweight and its price target from £11.13 to £16.70, saying:
We believe Hargreaves is winning a greater share of the opportunity presented by RDR [retail distribution review], with near-term risks from competition likely overstated. We upgrade to overweight on attractive risk/reward and further earnings upside risk with [our forecast] 5-10% above consensus.
In July, we argued the UK's RDR would create a £130bn opportunity as banks withdraw from the advice market. However, our analysis suggests:
Volume opportunity is bigger. We see Hargreaves doubling its share of UK mutual funds as bank advisers have fallen around 50% and competition is taking time to establish. Our base case now assumes 10% capture of this opportunity (versus 5% previously).
Pricing risks are less than feared. Our survey, competitor analysis and the experience of wealth managers to date suggests: (i) consumers are willing to pay 50-100 basis points for advice/platforms (i.e. more than anticipated) and; (ii) comparing providers will prove challenging, keeping churn rates low, with assets proving stickier than consensus expects.
But other financial groups were among the leading fallers, with *Schroders* down 43p at £25.47 and *Aberdeen Asset Management* 6.8p lower at 453.1p. The catalyst seemed to be *Ashmore*, down 50.8p to 358p, which issued a disappointing trading statement, showing that clients withdrew $3.5bn more from its funds in the last three months of 2013 than they put in. The outflows came amid concerns about the US Federal Reserve's monetary policy and its effects on emerging markets, a core business for Ashmore.
*Intertek* fell 76p to £29.93 after analysts at Natixis cut their recommendation on the testing equipment business from neutral to reduce and their target price from £33 to £28.
Among the mid-caps *Qinetiq*, the company spun out of the Ministry of Defence research department, rose 9.2p to 236.7p following talk that the company had sold $7.8m worth of Talon robots, unmanned ground vehicles used to track bombs and other explosives, to Pakistan.
*Balfour Beatty* added 4.5p to 294.5p after a positive trading statement. Reported by guardian.co.uk 7 hours ago.
On a day when the market was searching for direction, things were livened up by a spate of merger speculation.
After the $16bn bid for US bourbon maker Jim Beam by Japan's Suntory, analysts were suggesting that *Diageo* or Pernod should step in to break up the party. Liberum's Pablo Zuanic said:
Conventional wisdom has it that no rival bids will emerge for Beam. We disagree. The international premium spirits business is about brands first, and about building scale and distribution muscle for those brands. So if one of the two leading bourbon companies comes up for sale and one believes in the export potential of Americana, then Diageo and Pernod should bid (especially when the other leading bourbon brand is controlled by a family structure; not that Brown Forman would not sell some day). For Pernod a bid may be a stretch, but we think a Diageo-led consortium bid is quite possible.
For Diageo assuming 3% cost of debt and 10% cost synergies, a bid 10% above Suntory's, would be 12% earnings per share accretive if it were to buy all of Beam. But Diageo could end up only buying half of Beam (the bourbon lines; Teacher's due to its Latin American strength; and the tequila lines), and the bid partner could keep the bulk of the rest.
Diageo ended the day 7.5p higher at 2003.5p.
Meanwhile UBS suggested *BSkyB*, up 31.5p at 871p, could be a possible target for Rupert Murdoch's Fox, which still owns 39% in the wake of News Corporation's failed bid in 2011, derailed by the phone hacking scandal. Analyst Polo Tang said:
Fox could revisit a merger of its European pay-TV assets to form Sky Europe. To overcome political resistance to a deal, BSkyB could remain listed but have its operating assets injected into Sky Europe in return for a majority stake in the larger entity.
Alternatively, the move to quad-play across Europe could also see BSkyB merge with either Vodafone UK or O2 UK. Such a deal could generate significant cost and revenue synergies that could be worth 248p-264p per share. Alternatively, Sky Europe could merge with either Vodafone or Telefonica to produce a European quad-play operator.
UBS moved its rating from neutral to buy and its price target from 880p to 1100p, saying the outlook was positive:
Overall, the deal talk helped push the *FTSE 100* 9.71 points higher to 6766.86, its highest level for two and a half months. But it was a fairly erratic trading day with the leading index falling as low as 6694 and rising to 6772 at its peak.
Worries about the US Federal Reserve trimming its $75bn a month bond buying programme unsettled investors, although better than expected UK inflation figures provided some support.
Pharmaceutical companies were in demand after positive comments at a JP Morgan healthcare conference.
*AstraZeneca* added 92p to 3755.5p after it said it was likely to return to growth faster than analysts had expected. It has been suffering from a number of key drugs losing patent protection amid concerns about its future pipeline.
Meanwhile *Shire*, which said it expected 2013 earnings growth to be at the top end of forecasts, rose 80p to £29.91.
*Hargreaves Lansdown* ended 23p higher at £15.08 as Morgan Stanley issued a positive note on the investment management group, saying it should benefit from new rules on customers paying for financial advice, known as the retail distribution review. Morgan Stanley moved its recommendation from equal weight to overweight and its price target from £11.13 to £16.70, saying:
We believe Hargreaves is winning a greater share of the opportunity presented by RDR [retail distribution review], with near-term risks from competition likely overstated. We upgrade to overweight on attractive risk/reward and further earnings upside risk with [our forecast] 5-10% above consensus.
In July, we argued the UK's RDR would create a £130bn opportunity as banks withdraw from the advice market. However, our analysis suggests:
Volume opportunity is bigger. We see Hargreaves doubling its share of UK mutual funds as bank advisers have fallen around 50% and competition is taking time to establish. Our base case now assumes 10% capture of this opportunity (versus 5% previously).
Pricing risks are less than feared. Our survey, competitor analysis and the experience of wealth managers to date suggests: (i) consumers are willing to pay 50-100 basis points for advice/platforms (i.e. more than anticipated) and; (ii) comparing providers will prove challenging, keeping churn rates low, with assets proving stickier than consensus expects.
But other financial groups were among the leading fallers, with *Schroders* down 43p at £25.47 and *Aberdeen Asset Management* 6.8p lower at 453.1p. The catalyst seemed to be *Ashmore*, down 50.8p to 358p, which issued a disappointing trading statement, showing that clients withdrew $3.5bn more from its funds in the last three months of 2013 than they put in. The outflows came amid concerns about the US Federal Reserve's monetary policy and its effects on emerging markets, a core business for Ashmore.
*Intertek* fell 76p to £29.93 after analysts at Natixis cut their recommendation on the testing equipment business from neutral to reduce and their target price from £33 to £28.
Among the mid-caps *Qinetiq*, the company spun out of the Ministry of Defence research department, rose 9.2p to 236.7p following talk that the company had sold $7.8m worth of Talon robots, unmanned ground vehicles used to track bombs and other explosives, to Pakistan.
*Balfour Beatty* added 4.5p to 294.5p after a positive trading statement. Reported by guardian.co.uk 7 hours ago.