Market Report: Ladbrokes urged to join in sector consolidation

Investors betting on Ladbrokes yesterday failed to bank any major winnings despite suggestions that the group should enter into a tie-up with the forthcoming merger between PartyGaming and the Austrian company bwin.

The resulting company, bwin.party, is not expected to come into existence until next Thursday, yet that did not stop Numis Securities highlighting the possibility of it getting involved in another deal. Predicting further consolidation in the gaming sector, the broker's analyst Ivor Jones said a merger between Ladbrokes and bwin.party "is the deal that makes most sense to us".

"Ladbrokes would achieve a rapid upgrade to its bookmaking capabilities online," he argued, adding that bwin.party "would be better able to exploit investment opportunities, in the US in particular".

"It appears that now is the time to discuss deals with Ladbrokes' management as it is already in talks with various parties," Mr Jones said. Ladbrokes announced in December that it was in preliminary discussions with 888 about making a bid for the small-cap online gambling company, but failed to comment on the progress when it released its final results last month.

There have also been reports recently that it has had early talks with the gambling software group Playtech regarding a potential tie-up.

Despite the focus on its shares, Ladbrokes eased up just 0.3p to 128.3p. PartyGaming, meanwhile, was left 6.3p stronger at 186.4p, with traders saying investors were moving into the stock ahead of the bwin merger completing.

Overall, the FTSE 100 rose 84.99 points to 5,880.87, its highest since the earthquake and tsunami hit Japan. Helping it were the banks, as Royal Bank of Scotland advanced 0.46p to 41.88p and HSBC jumped up 15.3p to 646.6p, despite heightened worries over Portugal. The country's parliament rejected the government's proposed austerity measures late on Wednesday, and yesterday Fitch downgraded its credit rating by two levels as a result.

Also shrugging off bad news were the retailers, with the latest figures from the Office for National Statistics showing sales in February dropped 9 per cent, more than expected.

Instead, however, investors concentrated on positive updates from Kingfisher and Next, and the B&Q owner was the top-tier index's best performer, increasing 17.6p to 261.4p, as its annual profit rose nearly 25 per cent.

The fashion retailer, meanwhile, closed 78p ahead at 2,043p, with its profits for the year up 9 per cent, and both groups increased their dividends. The rest of the sector benefited as a result, including Marks & Spencer and Debenhams, which climbed 12.6p to 358.1p and 2.8p to 63.1p respectively.

Invensys fell to last place after the engineering and industrial controls group announced out of the blue that its chief executive, Ulf Henriksson, had left the company. No explanation was given for the sudden change, and – though Invensys said trading was on-track – it still plummeted 16.1p to 341.2p.

There was also movement at GKN, with the engineering group revealing that its chief executive, Kevin Smith, is to retire. However, that will not be until the end of the year, and it ticked up 4.8p to 194.1p.

On the FTSE 250, there was a huge slide of more than 14 per cent for Cable & Wireless Worldwide as the telecommunications group warned its core earnings would see little growth over the next 12 months. The disappointing news came as it revealed its first annual figures since splitting from Cable & Wireless Communications, and its move yesterday of 9.1p to 54.2p means it has lost nearly 30 per cent of its share price since then.

In that time, it has been the subject of vague takeover speculation, and Charles Stanley's analyst Tom Gidley-Kitchin said that although he does not see "any bid arriving in the short term... [yesterday's] additional price fall certainly makes the company more vulnerable."

Drax was also among the mid-tier index's losers with a decline of 20.3p to 371.9p. As feared, Wednesday's Budget introduced a new carbon-emissions tax that will set a minimum price for a ton of carbon. Citigroup downgraded its recommendation on the power-station operator to "sell" from "hold", saying the measures mean Drax will face "£260m of additional carbon costs in 2020".

Another of the new taxes, this time on oil and gas groups operating in the North Sea, was still knocking Enquest, as it slipped back 1.8p to 135.8p. Premier Oil, however, surged up 77p to 1,988p after revealing its revenue and profit last year hit a new high. The company also said the new charge would have little effect on it because of the large tax allowance it currently holds.

On the Alternative Investment Market, AssetCo slumped another 0.5p to 13.50p after announcing its chief executive had resigned at the "request of the board". Earlier in the week, John Shannon, who was also one of the founders of the group, which runs London's fire engines, refused to vote for its £16m emergency share placing.