Market Report: Kesa roused by talk of Knight Vinke's next steps

Kesa Electricals was in focus last night as analysts turned their attention to the likely intentions of the newest entrant on the Comet owner's shareholder register.

Last week, Knight Vinke Asset Management, the famously activist investment group, showed its hand by declaring a 3 per cent stake in Kesa, which closed at 125.1p, up 3.5p. The investor first joined the Kesa shareholder register around May, before raising its stake last month. Given its history – Knight Vinke has previously pushed for change at companies such as HSBC and Royal Dutch Shell – the disclosure kicked off chatter about its plans for Kesa, with traders speculating about possible restructuring options. UBS jumped on the bandwagon with a rundown of possible alternatives last night, suggesting that instead of pushing for asset sales, disposals or the like, the new shareholder was more likely to turn its attention on the long-term incentive plan (L-tip).

"Kesa divisional management is fully accountable for individually agreed targets and we think that the senior management team should disclose these targets to increase shareholder confidence in delivering the strategic plan," the broker said, repeating its "buy" view and 150p target price. "The L-tip plan is set to be put before shareholders over the summer and we expect Knight Vinke may encourage management to disclose more specific L-tip targets."

Overall, the FTSE 100 touched a high of 4,880.88 before relaxing to 4,838.09, up 32.34 points, while the FTSE 250 ended at 9,276.39, up 136.74 points, against a session best of 9301.49 following some uninspiring US jobless figures. The latest non-farm payrolls, which strip out the noise from seasonal employment in the agricultural sector, showed that while the unemployment rate had relaxed, the world's largest economy lost 125,000 jobs in June, against market expectations of a decline of 110,000. Private hiring – a key gauge – rose by 83,000 in June, well below market forecasts of a rise of 112,000. The pullback in the headline unemployment rate was down to people leaving the labour force.

The Footsie's resilience was down to gains in the mining and the oil and gas sectors, which perked up as commodity markets steadied compared with the session before. Around the oils, speculators celebrated news of a very preliminary bid approach for FTSE 250-listed Dana Petroleum, the oil prospector which rose by more than 22 per cent or 263p to 1,440p last night. Following months of rumours, the Korea National Oil Corp said it had approached Dana, kicking off yesterday's rally. Though there was no official confirmation on pricing, market speculation pointed to the possibility of an offer of as much as 1,800p per share. There was some talk regarding the possibility of rival bid, but that failed to gain much traction.

News of the approach boosted sentiment across the wider sector, with Premier Oil rallying by nearly 8 per cent or 97p to 1,323p and Bowleven adding nearly 7 per cent or 8.75p to 135p amid hopes of further deal activity. Of Dana's bigger peers, FTSE 100-listed Tullow Oil was also driven up, swelling by more than 5 per cent or 54.5p to 1,046p, with speculators pinning the rise on similar factors. More savvy market watchers pointed elsewhere, highlighting positive feedback from a Tullow analyst trip to Ghana, with RBS, for instance, reiterating its positive view on the back of the visit.

Around the miners, investors were relieved after the new Australian Prime Minister, Julia Gillard, conceded ground over the country's planned resources tax. An upward revision in Chinese growth also supported the mood, with Xstrata gaining 25.3p to 871.1p and Rio Tinto rising by 30p to 2,934.5. In the wider sector, Kazakhmys was 19.5p up at 984.5p, Antofagasta rose to 777.5, up 14p,and Vedanta Resources added 58p to 2,131p.

Bargain hunters also made the most of the recent pullback in the banking sector. Barclays was among strongest of in the sector, closing at 266.95p, up more than 4 per cent or 13.75p. Lloyds was just ahead, adding 2.49p to 54.7p, while the Royal Bank of Scotland rose by 0.59p to 40.6p, HSBC firmed up by 1p to 600.1p and Standard Chartered closed at 1,611p, up 10.5p last night.

With riskier plays rallying, defensives fell back. Smith & Nephew was the weakest of the blue chips, shedding 5.5 per cent or 34p to 581.5p after Redburn scaled back its estimates for the group, while the consumer goods giant Reckitt Benckiser ended 40p lower at 3,045p. The pharmaceutical groups AstraZeneca and GlaxoSmithKline were 4.5p behind at 3,088.5p and 1p weaker at 1,108.5p respectively.

Shares in the property firm Savills rose by 5.9p to 280.7p after UBS turned positive, pointing to the potential for strong first-half results at the end of next month. That said, the second half may see some loss in momentum. "First-half activity has been particularly strong in Asia Pacific," the broker said, revising its view to "buy" from "neutral", albeit with a new 300p target price, compared to 360p previously.

"However, there are signs that activity is cooling and we expect this momentum to slow in the second half, particularly in China."

FTSE 100 Risers

Cairn Energy 422.1p (up 20.8p, 5.2 per cent)

Sector boosted by the read-across from Dana Petroleum; target raised to 398p at Canaccord Genuity.

Aviva 315.1p (up 9.3p, 3 per cent)

Gains ground with the wider market following positive feedback from an investor seminar.

Eurasian Natural Resources Corporation 841.5p (up 23.5p, 2.9 per cent)

Rallies with the wider mining sector.

FTSE 100 Fallers

BP 322p (down 5.95p, 1.8 per cent)

Comes under pressure amid a bout of profit-taking following Thursday's gains.

Burberry 739.5p (down 6p, 0.8 per cent)

Evolution Securities revises its recommendation to "neutral" from "add".

International Power 295.9p (down 0.4p, 0.1 per cent)

Defensives out of favour as market rebounds from Thursday's losses.

FTSE 250 Risers

Amlin 392.9p (up 11.4p, 3 per cent)

Makes gains after Citigroup upgrades its recommendation to "buy" from "hold".

Brit Insurance 900p (up 12.5p, 1.4 per cent)

Rebuffs a revised 1050p per share offer from the US buyout firm Apollo.

Halma 269p (up 3.6p, 1.4 per cent)

Included in Panmure Gordon's list of the most likely targets in the industrial engineering sector.

FTSE 250 Fallers

Bovis Homes 327.8p (down 8p, 2.4 per cent)

Parts of the housebuilding sector drift lower as sentiment remains weak.

Barratt Development 92.35p (down 0.1p, 0.1 per cent)

Like Bovis, fails to make any headway as sentiment remains weak.

Great Portland Estates 283p (up 0.3p, 0.1 per cent)

Underperforms the FTSE 250 after JP Morgan Cazenove switches stance to "neutral".