UK/Euro Financial Market Daily Morning Briefing 30-03-2007

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London shares open touch lower; Resolution main casualty as bid talks end

Leading shares were a touch lower in early deals, shrugging off a higher close on Wall Street, with Resolution plunging on the back of terminated takeover talks, helping to offset Kingfisher's gains amid reports of a possible bid from Goldman Sachs private equity, dealers said.
   
At 8.54 am, the FTSE 100 index was 6.2 points weaker at 6,318.0 after closing 57.0 points ahead at 6,324.2 yesterday, while the broader FTSE indices were mixed. Volume was fair, with 255 mln shares changing hands in 38,872 deals.
   
In the US overnight, Wall Street ended higher in volatile trading as investors weighed fears about mounting tension in Iran against a report that indicated better-than-expected US economic growth.
   
The Dow Jones industrial average closed 48.40 points higher at 12,348.80, while the Nasdaq Composite added 0.78 at 2,417.88 and the S&P 500 index ended up 5.30 at 1,422.55.
   
Meanwhile, in Asia this morning, trading was mixed, with Tokyo's Nikkei 225 index closing up 23.71 points at 17,287.65 but Hong Kong's Hang Seng down 58.48 points at 19,763.30 by midday.
   
Still in Asia, oil prices continued to rise, jumping to the highest price seen since early September as tensions over Iran's detention of UK naval personnel increased.
   
Earlier this morning, the New York Mercantile Exchange's main oil futures contract, light sweet crude for delivery in May, was up 0.62 usd at 66.65 a barrel from 66.03 usd in late trading in the US overnight. Brent North Sea crude for May was up 0.73 usd at 68.61.
   
Turning to London, Resolution led the blue-chip casualties, dropping 31-1/2 pence at 616 after the life insurer said talks with various parties over its possible sale have now been terminated.
    
It said it will continue to assess possible acquisitions and business combinations that would not constitute an offer for it, the company said in a statement.
   
Vodafone Group also weighed, down 3.9 pence at 137.7, as the mobile giant highlighted intensifying competition at its UK and German divisions today.
   
Nomura Securities noted UK margins are weaker than expected and while revenue growth is stronger the broker doubts the company will be able to sustain this higher growth rate for long.

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It added that Germany is even tougher than the UK, with an effective 25 pct price per minute reduction arising from a combination of interconnect cuts and competitive pressure.
   
The stock was also under pressure following a report India's Foreign Investment Promotion Board (FIPB) has deferred a decision on Vodafone's proposed acquisition of Hutchison Telecom's (HTIL) stake in Hutch Essar for the second time, according to the Hindu Business Line.
   
Among broker comment, British Airways fell back 13-1/2 pence at 484-1/2 after ABN Amro downgraded the national carrier to 'sell' from 'hold' and cut the target to 430 pence from 540 on the back of the broker's reduced earnings forecasts following the Open Skies deal.
   
In a note published this morning, ABN Amro told clients that Heathrow is special in many ways, but normal economic rules still apply and after the implementation of Open Skies there will be new entrants and fares are set to fall. BA shares were also hit by the high oil prices.
   
On the upside, meanwhile, Kingfisher led the gainers with a 3.5 pct rise to 280, up 9-1/2 pence, after the Times reported Goldman Sachs' private equity arm is understood to have looked at a bid for the DIY retailer in the past two months.
   
The paper added that analysts said the owner of B&Q and French retail chain Castorama was an obvious target for private equity interest.
   
Scottish & Newcastle was also in demand for a second day running, adding 9-1/2 pence at 604-1/2 following yesterday's 12 pct share price jump, as talk of a 700 pence a share cash bid for the brewing giant from Heineken refused to die down.
   
Sentiment in the stock was further lifted by a competing rumour involving a break-up bid involving Carlsberg.
   
This morning, Merrill Lynch played down the likelihood of an imminent offer but said "for those that do wish to play the S&N bid story" its estimates suggest that a value of 630-650 pence may be a take out range, which would put S&N "on a punchy" 2007 EV/EBITDA of 10.8-times to 11.1 times.
   
And buyers also came for Alliance Boots, 8 pence better at 1,035, following an announcement the international health and beauty group has agreed to open its books to Stefano Pessina, its executive deputy chairman and 15 pct shareholder, and private equity group Kohlberg Kravis Roberts (KKR), after the consortium put forward a revised takeover proposal of 10.40 stg a share in cash.
   
The 10.40 stg offer includes any dividend declared or paid after today and values the group at 10.06 bln stg.
   
Elsewhere, listed hedge fund manager Man Group rose 5-1/2 pence to 570-1/2 in early deals, a gain of almost 1.0 pct, after announcing plans to demerge its brokerage unit Man Financial and list it on the New York Stock Exchange, accompanied by a trading update that stated full-year pretax profit will be in line with current analyst consensus.

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Man said it aims to hold Man Financial's initial public offering in the third quarter of 2007, provided market conditions remain favourable. The business will be renamed MF Global, and will be led by the unit's current managing director, Kevin Davis.
   
Among commodity plays, mining issues also helped to minimise index losses on the back of rising base metals prices, with gold up 1.7 usd an ounce to 669.3, while silver and copper prices also gained.
   
Kazakhmys took on 14 pence at 1,164, Lonmin rose 35 at 2,246, Rio Tinto gained 24 at 2,889 and BHP Billiton was up 4 at 1,137.
   
Similarly, BP and Royal Dutch Shell were 3-1/2 pence higher at 561-1/2 and 9 ahead at 1,715, tracking crude oil prices.
   
On the second tier, Autonomy topped the leaderboard, up 23 pence at 668-1/2 after Goldman Sachs added the software group to its Conviction Buy List and lifted its target to 800 pence from 640.
   
In a note to clients, the broker said the new target implies about 23 pct potential upside even after the strong outperformance in the year to date. It also said it was raising its above-consensus estimates by 11-16 pct for 2007-09.
   
Hays was also on the up, thanks to a broker upgrade, with the shares adding 4-3/4 pence at 158 after Morgan Stanley raised its rating to 'overweight' from 'equal-weight' with a new price target of 200 pence, versus 153. The broker said the UK staffing group is its top sector pick, and it anticipates an inflection point at Hays in 2008 that is not yet factored in by the market.
   
Returning to M&A news, Rentokil Initial was 3-1/2 pence ahead at 162-1/4 after confirming it has received a 595 mln stg cash offer for its electronic security division, Initial Electronic Security Group, from United Technologies Corp.
   
Among the mid-cap fallers, FKI was the main loser, down 3 pence at 115-1/2, after the engineering group said its underlying trading performance in the second half of the year met expectations but, as expected, the weak dollar will have a significant impact on reported results.
   
In reaction, Merrill Lynch said the statement was in line with its forecasts, which were below consensus. The broker also noted there was no news on disposals and reiterated its 'sell' recommendation.
   
On the economic front, investors have a raft of data to deal with on both sides of the Atlantic as the first quarter draws to an end.
   
In the UK, the consumer confidence indicator published by pollsters GfK/NOP is expected to remain steady in March with a reading of -8, the same recorded in February.

UK Diary of Events

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

US Summary

For a summary of US stocks at yesterday's close of trade, click here

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Forthcoming Events

Today
   
Monthly consumer confidence survey, 8.40 am
   
Feb unemployment figures, 8.45 am
   
Feb producer price index, 8.50 am

Monday
   
Altran FY results (before market opens)
   
DCN/Thales press conference on merger
  
Company News
   
EDF Energies Nouvelles orders 184 wind turbines from GE Wind for US unit
   
Vinci, ASF, Cofiroute ratings affirmed, off CreditWatch neg, outlook neg - S&P
   
Natixis to auction 800 mln usd of loans issued to US subprime lender New Century
   
NRJ Group FY net, opg profit hit by TV, Mobile ops; recovery seen in 2009
   
EADS co-CEO Gallois still sees 20 orders for Airbus A380 in 2007

Miscellaneous
   
Sarkozy to win 2nd round of presidential election vs Royal with 53.5 pct of vote
   
Market Sentiment
   
EDF Energies Nouvelles started 'neutral' at Merrill Lynch, target 42 eur
   
SCOR started at 'neutral' by HSBC; 21.60 eur target

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FRANKFURT - market data at 9.47 am 

Major indices
   
DAX - up 1.58 points, or 0.02 pct, to 6,898.66
MDAX - up 16.46 points, or 0.16 pct, to 10,177.97
TecDAX - up 1.24 points, or 0.15 pct, to 844.26
DAX futures - down 8.50 points, or 0.12 pct, to 6,952.50

Major Advancers:
   
Commerzbank, up 0.79 eur or 2.44 pct or 33.21, on speculation boosting German financials that Citigroup might be looking to take over a German bank
   
Deutsche Postbank, up 0.82 eur or 1.28 pct at 64.70, gaining on the same speculation
   
Deutsche Bank, up 1.16 eur or 1.16 pct at 101.22, likewise gaining with the rest of the German banking sector
   
BMW, up 0.27 eur or 0.62 pct at 43.95, as one analyst pointed to a boost from news yesterday that BMW has set up a new production plant in India. Short-term capacity will be a modest 1,700 cars, but BMW wants to follow strong expected market growth in India and expand the plant mid-term, the analyst said.
   
RWE, up 0.50 eur or 0.58 pct at 87.31, as utilities generally advanced on slightly higher oil prices

Major decliners:
   
Adidas, down 0.52 eur or 1.27 pct at 40.56
   
Deutsche Post, down. 0.16 or 0.70 pct at 22.68
   
SAP, down 0.21 eur or 0.63 pct at 33.29, extending yesterday's losses on news that board member and chief technology officer Shai Agassi is to step down.

Traders also said technology stocks might be seeing a bit of downward pressure after Dell Inc announced yesterday that an internal review had found discrepancies in its figures delaying release of its full-year report and perhaps prompting the computer manufacturer to revise figures over the past few years.  
   
Deutsche Post, down 0.16 eur or 0.70 pct at 22.68
   
Allianz, down 0.89 eur or 0.58 pct at 153.37
   
Infineon, 0.06 eur or 0.52 pct at 11.57, also perhaps seeing downward pressure from Dell's delaying release of full-year figures

Other Major Movers:
   
MDAX-Listed Norddeutsche Affinerie, down 1.12 eur or 4.50 pct at 23.78 as the shares are trading ex-dividend

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AMSTERDAM - market data at 10.28 am

Major indices
   
AEX                 509.80, down 2.05 points
AMX Midcap          720.58, up 0.85 point
Government bonds    unchanged to slightly higher
   

Major decliners:
   
Buhrmann gave up 1.41 pct to 10.52 amid news the CEO of its troubled Corporate Express North America division will step down, which analysts viewed as not boding well for the group's first-quarter results
   
Heineken shed 1.16 pct at 38.44 amid continued speculation the Dutch brewer could bid for Scottish & Newcastle
   
Numico lost 0.82 pct at 38.55, Ahold slipped 0.8 pct at 8.63

        
Major gainers:
   
Nutreco jumped 3.85 pct to 56.60 after announcing late yesterday it will hand back 170 mln eur to shareholders in a super dividend and that it is in talks with potential takeover targets with combined sales of over 1 bln eur
   
Ordina gained 0.8 pct at 17.68 after SNS Securities raised its price target to 22 eur from 18 and reiterated a 'buy'
   
Staffing stocks were in demand, with Randstad adding 0.45 pct at 58.48 and Vedior 0.36 pct higher at 16.77 amid news of "a nice add-on acquisition" of UK marketing recruitment company Major Players. USG People edged 0.1 pct higher at 30.99
    
ING added 0.32 pct at 31.55

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