Market Report: Compass heads north on rumours of buyout

Despite a decent rally over the last 12 months, shares in the catering giant Compass Group have been among the worst performers in the blue chips over the last three years, falling more than 18 per cent against a much stronger market. However, the word among traders is that the cavalry could be arriving in the form of a private equity-backed buyout.

Compass, the world's largest contract catering group, has been looking to sell off a number of non-core businesses since Richard Cousins took the top job in June last year. The word among traders is that private equity companies are running the rule over Compass with a view to taking the company private, accelerating the asset sell-off and gearing up the balance sheet. Shares in Compass closed 1.75p firmer at 306.75p.

Insurance giant Aviva looks set to re-test five-year highs after a bullish note from Credit Suisse. The broker upgraded the stock to "outperform" from "neutral" and upped its price target to 971p.Shares in Aviva nudged another 11p better to 835p, with talk of another bid for Prudential, 2p worse at 721p, never far away.

Elsewhere in the rumour merry-go-round, speculation that Kohlberg Kravis Roberts is preparing to bid for Home Retail sent the shares another 2.75p better to 420p. The company is due to update investors tomorrow so most traders remain sceptical that a bid will emerge before the end of the week. Traders said Home Retail, which operates the Argos and Homebase stores, is expected to have had a solid Christmas.

With the New York market closed because of the Martin Luther King Day public holiday, there was nothing from across the Atlantic to drive London shares. The FTSE 100 closed 24.5 better at 6,263.5.1 as demand for oil, banking and pharmaceutical stocks pushed the index higher.

Friday's surprise news that Lord Browne of Madingley, chief executive of BP, will retire ahead of schedule helped shares in the oil giant close another 2.5p better at 549p. Brokers UBS and Citigroup reiterated their "buy" advice on BP shares with the latter giving the shares a 640p price target. Meanwhile, Shell rallied 16p to 1,728p.

Buyout rumours continue to support shares in Biffa, the waste management group demerged from Severn Trent in October last year, as the shares closed 10.5p firmer at 340p. The word is that French utility group Suez is considering an offer for Biffa and that Grupo Ferrovial is looking at a handful of British waste groups. But some market watchers think the shares are already looking too expensive. One trader said: "An offer north of 400p implies an 85 per cent premium to the listing price inside four months, which Suez will have trouble justifying."

There are likely to be plenty of nerves before a trading statement from department store Debenhams, due this morning. The company told investors in early December that it would need a blockbuster festive season to hit its forecast numbers, but many traders believe that unlisted rival John Lewis has emerged as the big Christmas winner. Shares in Debenhams fell another 5.5p to 183.75p.

After a bad start to the year there was welcome relief for mid-cap oil stocks yesterday as Tullow Oil, 27p firmer at 403p, gave investors a bullish drilling update on its operations in Uganda. Brokers Deutsche Bank, Merrill Lynch and Citigroup all reiterated "buy" advice on the shares, with Merrill giving them a price target of 470p. Other mid-cap oil stocks were also in demand, with Premier Oil climbing 49p to 1,145p and Venture Production closing 24p better at 772p.

In the small caps, news that offer talks for Sports Café have been terminated will not come as a surprise to investors. The group's profit warning last week in effect put an end to hopes that an offer in the region of 60p per share was on the way. The shares fell another 5.25p to close at 19.75p, well below the price the shares were trading at before the takeover talks.

Shares in Antonov, the automotive gearbox developer, surged 18.5p to 122p after news of a licence agreement with the transmission manufacturing arm of Geely Automotive, one of china's largest car makers. The deal will pay Antonov €900,000 in fees over the next nine months plus royalties on each unit sold. After a grim year in 2006, the shares have now rallied to a 21-month high. Geely recently signed a deal with Manganese Bronze, the makers of London cabs. Christopher Ross, the deputy chairman of Manganese Bronze, is also chairman of Antonov.