Renewed bid talk lifts Imperial Tobacco

Imperial Tobacco followed a rising London market on Friday as its recent weakness triggered renewed takeover speculation.

The maker of Gauloises and Davidoff cigarettes rallied from a three-month low hit in the wake of an update on Wednesday, which showed demand in Europe and Russia worsening.

Tougher than expected market conditions were undermining Imperial’s investment in brands and innovation, suggesting it may be time to consider plan B, Deutsche Bank said.

“Consolidation has usually been the fate of the smaller international tobacco player,” said the broker. “We believe that either Imperial delivers sustained improvement in organic sales growth, or that it is ultimately subject to a break-up bid.”

“It would be very hard to take this company over. However, we think the lack of clear strategic direction could make it much harder to mount any defence of Imperial, so to that extent it becomes more of a possibility,” said Citi.

The shares rose 0.6 per cent to £23.58.

Imperial has long been considered a likely target for a carve-up led by Japan Tobacco, which raised guidance this week following a strong performance by its international business.

The FTSE 100 rallied to its fifth straight weekly gain on positive US jobs data. The index was up 70.36 points or 1.1 per cent to 6,347.24 for a 1 per cent gain in the week.

BT Group jumped 6.5 per cent to 264.8p after its third-quarter results beat forecasts and management outlined more cost cutting. Smaller peer KCom rose 7.1 per cent to 77p after reporting contract renewals and “positive momentum across all brands”. That helped lift TalkTalk , the internet provider, which rose 6.3 per cent to 251.4p ahead of its third-quarter update on Tuesday.

Sterling’s fall to multi-month lows against the dollar and euro this week helped underpin companies reliant on overseas sales.

Goldman Sachs recommended clients short UK domestic stocks in a pair trade with international earners. Its recommended basket included GKN , up 3.5 per cent to 249.3p, and Reed Elsevier , which firmed 3.9 per cent to 713.5p

British Airways owner IAG rose 0.4 per cent to 213.6p after talks failed with unions over a plan to restructure Iberia, its lossmaking Spanish arm. The collapse of talks meant IAG could push cuts unilaterally under Spain’s new employment law that caps redundancy costs, said analysts.

Miners tracked metals prices higher after official Chinese data showed manufacturing expanding for a fourth month. Vedanta Resources rose 4.6 per cent to £12.59 and Kazakhmys added 3.3 per cent to 754p.

Randgold Resources added 1.9 per cent to £60.85. Liberum Securities added the stock to its “buy” list following a site visit.

“We believe the company’s tier-one long-life assets and impressive operational management team will deliver sustainable attractive free cash generation returning more than 40 per cent of its market cap over the next five years,” Liberum said.

But New World Resources lost 2.5 per cent to 282.9p, taking its drop since releasing 2013 coal pricing on Monday to 9.6 per cent. Reduced demand from steelmakers meant investors feared the group would cancel development of its Debiensko project in Poland, which had been expected to open in 2018.

Tate & Lyle slipped 1.1 per cent to 804p after a trading update showed sales of its Sucralose sweetener not recovering as expected, particularly in Europe.

Essar Energy rose 7.3 per cent to 140.2p, with Merrill Lynch repeating its “buy” recommendation. “We see 2013 as a turning point for Essar as capital expenditure halves and new assets deliver, driving significant improvements in free cash flow,” the broker said.

Afren jumped 7.4 per cent to 154p on a report that it was in talks to sell more than $1bn of assets to Sinopec, including its Nigerian prospects. The oil explorer had said in November it had been approached over potential asset sales.

Tullow Oil , the operator of the Paipai well, gained 3.6 per cent to £11.79.

Leyshon Resources , the Chinese gas prospector, rose 7.9 per cent to 15.4p after its managing director bought 1.8m shares.