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Financial Times: Old Mutual looks towards the future

EXTRACT: BP, up 1.2 per cent to 554½p, drew support from a research note published by ABN Amro that claimed a merger with rival Royal Dutch Shell, 1 per cent stronger at £16.91, could generate synergies of $10.3bn (£5.2bn) a year before tax.

By Neil Hume and Robert Orr
Published: April 7 2007 03:00 | Last updated: April 7 2007 03:00

Old Mutual was among the biggest risers as the FTSE 100 closed at its highest level in almost six weeks.

Shares in the UK and South African insurer rose 2.4 per cent to 170.5p on Thursday after Citigroup upgraded to “buy”, citing valuation.

Old Mutual has performed poorly in the year to date, falling 2 per cent and underperforming the wider market. The company warned in February that exchange rates and continued investment in its businesses in Europe and South Africa would limit earnings growth this year.

However, Citigroup told clients that all the bad news was now in the price and that at current levels, the risk/reward profile was starting to look attractive.

Old Mutual was not the only South African-focused stock in demand on Thursday. Platinum miner Lonmin advanced 3.2 per cent to a record high of £34.76, with traders attributing the rise to an institution switching out of another FTSE 100 mining company into Lonmin.

In the wider market, the FTSE 100 closed 32.6 points, or 0.5 per cent, at 6,397.3 on relief that the Bank of England had decided to keep interest rates on hold, for now. The blue-chip index was also boosted by strength in the heavyweight oil sector and a strong performance from HSBC.

Shares in the UK’s biggest bank rose 1.3 per cent to 904p on news chief executive Michael Geoghegan had bought almost $8m (£4m) worth of stock.

The FTSE 250 rose 26.7 points, or 0.2 per cent, to a record high of 11,915.9. Over the week, the FTSE 100 rose 1.4 per cent and FTSE 250 1.9 per cent.

BP, up 1.2 per cent to 554½p, drew support from a research note published by ABN Amro that claimed a merger with rival Royal Dutch Shell, 1 per cent stronger at £16.91, could generate synergies of $10.3bn (£5.2bn) a year before tax.

Intercontinental Hotels Group provided the session’s speculative feature, rising 0.5 per cent to £12.84 amid further talk of predatory interest from the Barclays Brothers, who have amassed a 7 per cent holding in the hotel operator.

There was also talk that financier Guy Hands was running the rule over the company.

Separately, JPMorgan raised its target price on Intercontinental to £14.20. The broker believes the 25 trophy hotels Intercontinental has put up for sale are worth £1.8bn – or 40 per cent of its current market value.

Among the mid-caps, Taylor Woodrow rose 3.2 per cent to 518p as rumours of a counterbid from FTSE 100 rival Persimmon, up 1.2 per cent to £14.65, refused to die down.

That theory was thrown into doubt after Persimmon’s chairman, chief executive and finance director declared the sale of 190,000 shares, however, traders were quick to point out that the stock had been sold to settle tax liabilities.

Ladbrokes added 2.9 per cent to 418p as the CVC Capital buy-out rumour was dusted down and given a fresh airing.

Buy-out rumours were also swirling around Davis Services Group, 2 per cent stronger at 609p.

Elsewhere, the recent strong run of Southern Cross Healthcare continued. Its shares, 310p at the start of the year, advanced a further 3.7 per cent to 498p after Morgan Stanley increased its target price to a punchy 570p.

“The UK care home market remains enormously fragmented and over the last month the company has more than proven its ability to acquire medium-sized operators,” the broker said.

Lower down the market, Secure Design, the Japanese biometric finger-printing specialist, rose 7.7 per cent to 48½p after Fuji revealed it had acquired a 15.85 per cent stake.

Aricom, the mining company spun out of Peter Hambro Mining, advanced 25 per cent to 81½p on news that its main iron ore project in Siberia had been independently valued at $1.67bn.

Aricom, which has a current market capitalisation of more than £250m, also confirmed that it would exercise an option to buy the 50 per cent of the project it does not currently own.

Copyright The Financial Times Limited 2007

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