Market Report: P&O buoyed by Shellhaven development hopes

Hopes that P&O will soon secure planning permission to develop its Shellhaven sites sent shares in the ports and shipping group motoring higher yesterday. UBS pointed out that P&O is aiming to build the UK's largest container port at Shellhaven and predicted that the group will be given planning permission by the end of the year.

Hopes that P&O will soon secure planning permission to develop its Shellhaven sites sent shares in the ports and shipping group motoring higher yesterday. UBS pointed out that P&O is aiming to build the UK's largest container port at Shellhaven and predicted that the group will be given planning permission by the end of the year.

The broker said the port, once fully developed, could add up to 64p of value to P&O's share price and on this basis it urged investors to pile into the stock. Upgrading its recommendation from "neutral" to "buy", UBS said: "We believe Shellhaven could be worth between 17p and 64p per share for P&O. This translates into a group fair value estimate of 250p to 280p a share."

Thanks to these comments P&O finished the day as one of the best FTSE 250 performers, up 9.75p to 233p. And the Swiss broker suggested there could be more positive news for shareholders in the future. It argued that as P&O continues to streamline its operations, the group is increasingly likely to become a takeover target. UBS estimates that the Shellhaven project will cost P&O about £700m and predicts that this will be funded via the disposal of non-core assets.

Elsewhere, Matalan gained 7p to 207.25p on reports that the private equity groups Cinven and Kohlberg Kravis Roberts may bid jointly for the retailer. Target, the US discount retailer, was also talked of as a potential predator but analysts hinted that a bid for the company was unlikely before 25 August. This is when Matalan is due to launch its autumn collection.

On a larger scale, there was speculation of a bid for Shell, up 8.75p to 399.25p, from Total of France. But analysts at Dresdner Kleinwort Wasserstein were far from convinced by the story. "We ascribe a less that 10 per cent chance of this coming true," they told investors. According to Dresdner, Shell is simply too big for Total to swallow - the French group has a market value of $126bn, while Shell is valued at $173bn. And despite its problems, Shell is not a lame duck. Its share price has recouped most of the losses it incurred during January's reserves crisis.

The FTSE 100 index roared 48.7 points higher to 4,350.2 as investors were buoyed by a dip in oil prices. Although the price of crude remained above $46 a barrel it retreated from all-time highs. Hopes that this trend will continue pushed British Airways 8.5p higher to 216.25p. Fuel is one of BA's biggest costs.

Royal & SunAlliance added 2.25p to 73.5p as Andrew Haste, the insurer's chief executive, disclosed the purchase of 69,000 shares at 72p, while George Culmer, the finance director, acquired a more modest 35,000 at 71.75p. There was also director share-buying at Elementis, steady at 33.75p. Jonathan Fry, the chairman of the chemicals group, picked up 60,000 shares at 33.75p.

Alternative telecoms carriers enjoyed solid gains as Cable & Wireless rose 3.5p to 105.5p and Colt Telecom added 1.5p to 38p and Thus improved 0.25p to 14.75p. The gain must come as a welcome relief for those with exposure to the sector, which has halved in value from the high it achieved earlier in the year. Thus shares have been the worst hit - they are down 63 per cent from their March peak - due to last month's profits warning.

The trading activities of Robert Bonnier, the former Scoot.com boss, were again a talking point of dealing rooms as it emerged that he had returned to holding his stakes in Innovation Group, up 0.75p to 24.75p, and Regus, 3.75p better to 61.25p, in the form of a contract for difference. He originally built up his exposure to both companies using contracts for difference, a type of derivative which allows traders to take large punts on share prices while putting up only a fraction of the cash, but then fork out to take control of the underlying stock.

Yesterday, Mr Bonnier said he had resorted to holding his 18 per cent stake in Innovation and 5.8 per cent holding in Regus in the form of a contract for difference. This move allows him to raise extra cash, according to market professionals. What he will do with the money is unclear. Some said he needs it to cover losses incurred from an unfortunate investment in Eidos, rumoured to have cost him £6m, while others suggested he may be planning to further increase his holding in Innovation.

In the world of small-caps, XKO Group fell 1.5p to 66.5p amid disappointment at a lack of new contract wins at the business software provider.

Speedy Hire fell 7.5p to 410p after reporting a £6.6m acquisition. Dealers reported the presence of a large sell of Speedy Hire stock.

Cox Insurance ticked 1p lower to 56p on worries about the exposure of Lloyd's insurers to Hurricane Charley, which has caused hundreds of millions of dollars' worth of damage to property in on the east coast of the US.

Market Movers

WPP 489p (up 18p, 3.8 per cent). Morgan Stanley upgrades its rating on the advertising giant ahead of its interim results on Friday.

BAE Systems 207.5p (up 6.75p, 3.4 per cent). Buys GKN's 50 per cent stake in Aerosystems International, which specialises in software for the defence industry, for £14.5m.

BHP Billiton 523.25p (up 14.75p, 2.9 per cent). Morgan Stanley ups its price target on the mining giant to 580p from 540p ahead of tomorrow's full-year results.

Aviva 510p (up 9.5p, 1.9 per cent). Buys HPI, which specialises in combating fraud in secondhand car sales, for £120m from Phoenix Equity Partners.

ebookers 140p (up 17.5p, 14.3 per cent). Says it is recovering from a drop in demand during Euro 2004.

Coffee Republic 0.85p (up 0.1p, 13.3 per cent). Says the company's recovery is on track after a string of disposals and a switch to a deli format.

Medisys 8.12p (up 0.75p, 10.2 per cent). Announces that Wal-Mart is to roll out the group's blood glucose meter across its network of 3,400 stores.

IQE 6.87p (up 0.87p, 14.5 per cent). In demand ahead of results later this week.

Centrica 241.75p (down 0.75p, 0.3 per cent). The group is reported to be in talks to buy Dyno-Rod, the drain cleaning business which recently abandoned its flotation plans.

Michael Page 159p (down 4.5p, 2.6 per cent). Profit taking after in-line first-half results.

Ultraframe 75p (down 35.25p, 31.9 per cent). Issues yet another profit warning after experiencing a disappointing start to its key summer season.

Real Affinity 1.5p (down 0.25p, 14.3 per cent). Buys Benson Communications, a marketing company, for an initial £1.2m.

Tullow Oil 119.5p (down 2.75p, 2.3 per cent). News of Gabon deal fails to excite the market.

JD Group 186.5p (down 4.5p, 2.4 per cent). Worries about sales at the retailer persist.