Market Report: Heritage Oil takes a turn in takeover spotlight

It has been a busy week for the market rumour mill, and yesterday was no exception as another batch of companies found themselves in the midst of takeover chatter.

One of those mooted as a target was Heritage Oil, with speculation emerging in the afternoon that two different companies were considering making an approach worth around 600p-a-share. Not for the first time, the gossip focused on interest emerging from Asia, with the Chinese explorer CNOOC and another unnamed group the names mentioned.

As traders noted a significant volume increase in the stock towards the end of trading, Heritage touched 433p at one point before finishing on 427p, a rise over the session of 16.8p.

There was also vague chatter that the same two companies were eyeing up Premier Oil for a potential bid of between 2,800p and 2,900p, although this caught the market's imagination less, as it only edged up 7p to 1,919p.

Cobham was similarly helped by takeover gossip, and it finished near the summit of the top-tier index after jumping 7.2p to 203.6p. There was speculation that it could attract a bid of 275p-a-share, with Finmeccanica, BAE Systems and Northrop Grumman all talked about as potentially considering a move.

Analysts pointed out that there has been an increasing number of defence companies looking at making purchases. "Merger and acquisition activity has picked up across the defence sector as firms reposition themselves to meet changing priorities in defence spending," said Tina Cook, an analyst at Charles Stanley.

She said Cobham could be seen as attractive because of its involvement in a number of niche areas, including surveillance and cyber security.

Cobham has certainly had a tough time of it recently, losing more than 10 per cent of its share valuation since its November trading update when it revealed that earnings growth was unlikely in 2010. On Wednesday it suffered another blow when it was confirmed that it was being relegated to the FTSE 250.

Overall, the FTSE 100 made 13.43 points to finish on 5,807.96, as the Bank of England's decision to keep interest rates at 0.5 per cent shocked absolutely no-one. There was good news emerging from America, where the US Labor Department revealed that initial jobless claims had dropped by 17,000 to 421,000 last week.

Most of the banks put aside worries over the financial state of the eurozone to enjoy a fairly strong day, with City Index's Nick Serff putting it down to "good overnight performances for US and Asian banking stocks". As a result, the blue-chip index was topped by Barclays, which climbed 11.85p to 276p, while Royal Bank of Scotland also did well, making 1.33p to 42.31p.

Standard Chartered, however, was rather left behind following the release of its pre-close trading update, which saw it forecast second-half income coming in at around the same level as the first six months.

Shore Capital's Phil Dobbin was impressed and said the bank was "on track to deliver another record year". Yet this clearly wasn't enough for the market, and it ended up shedding 68p to 1,810p to finish just one spot away from the bottom.

Elsewhere on the top-tier index, Serco reaped the rewards of Citigroup's decision to take a look at the European business services companies. As part of the review, the broker gave the outsourcer a "buy" rating, prompting it to gain 12p to 579p.

The top two spots on the FTSE 250 were bagged by companies bumped up off the back of results. Ashtead Group came out the best, advancing 14.3p to 158p, as its first-half figures appeared convince investors that it was on the road to recovery.

Also strong was DS Smith, with the packaging company revealing that first-half pre-tax profits had risen by 17.5 per cent – it shifted up 17.8p to 210p.

At first glance, a 70 per cent jump in third-quarter profits for Premier Farnell looked impressive, but investors clearly did not agree. The electronic components distributor's share price plummeted 23p to 280p and finished in last place, with Evolution Securities' Adrian Kearsey predicting short-term profit-taking "in the absence of upgrades".

The high street chain HMV found its share price slashed by more than 16 per cent among the small caps as the entertainment retailer posted worse-than-expected first-half losses of £41.3m.

The group, which announced that it was halving its interim dividend, fell 7.25p to 36.25p, leaving some analysts fearing the worse. Hargreaves Lansdown's Keith Bowman said that "these results do little to ease fears that HMV is slowly being consigned to the history books".

On the Alternative Investment Market, Velosi – which provides testing and inspection services for the oil-and-gas sector – was up 59.25p to 161.5p after it agreed to recommend a £87.8m offer from the private investment company the Carlyle Group.