Market Report: P&O makes waves on talk of Singapore interest

Shares in P&O were set alight by rumours that Singapore's state investment agency, Temasek, was trying to build a stake in the ports and shipping player as a precursor to a full takeover.

Shares in P&O were set alight by rumours that Singapore's state investment agency, Temasek, was trying to build a stake in the ports and shipping player as a precursor to a full takeover.

The talk pushed P&O stock 8.5 per cent higher, or up 25p to 327.5p. Analysts believe the interest in the company has been prompted by AP Moeller-Maersk's $3bn (£3bn) offer for P&O Nedlloyd, the container shipping firm where P&O holds a 25 per cent stake.

Tamasek owns Neptune Orient Line, a sizeable container shipping business, and by making a move on P&O it would pre-empt any potential offer for the company from the likes of Maersk. The Danish firm is likely to be interested in P&O's ports business. As is Tamasek.

If the Singaporean company were to acquire the UK group it would create the world's largest ports company with a market share of about 15 per cent. If combined with its Neptune Orient Line unit, the result will be a giant port and container shipping business with the firepower to challenge Maersk.

But merger and acquisition activity is not easy in this sector. Port concessions usually contain change of ownership clauses and therefore analysts believe any bid for P&O will have to be a friendly one. They noted that covertly building a stake in the group is a rather hostile move and so unlikely to endear Tamasek to the P&O board.

Meanwhile, the FTSE 100 rose 13 points to 4,962 as blue chips racked up a third consecutive day of gains. O2 had a good session, gaining 4.25p to 120.75p, after Goldman Sachs upgraded its recommendation on the mobile phone operator to "out-perform" from "in line".

The US broker believes O2 has under-performed rivals for too long. It noted that over the past three months the stock has under-performed the European sector by 7 per cent and its rival Vodafone, up 1.25p to 140.75p yesterday, by 10 per cent.

Goldman sees no reason why O2's strong operating performance will not continue and highlighted the company as a takeover target in the longer term.

LogicaCMG, 2.75p better at 175.75p, was boosted by a note from Cazenove. The heavyweight broker applauded the IT group's recent trading statement and raised its rating to "out-perform" from "in line".

Cazenove also got investors interested in InterContinental Hotels, 10.5p better at 650p. The broker argued that the hotels group has the potential to make a further £1.7bn worth of asset sales, having already announced £1.7bn of business disposals. The bulk of this extra cash can then be returned to shareholders through share buy-backs and special dividends.

InterContinental's rival Hilton Group put on 3.75p to 276.5p before today's trading statement. Citigroup was heard to have upped its stance on the stock to "buy" from "hold" in advance of the update. SkyePharma ticked 0.5p better to 55p after Dresdner Kleinwort Wasserstein sold its 7 per cent holding of 45 million shares to various institutions at 54p.

BTG improved 4.75p to 130.5p on news that the technology group had won a $17m payment from a litigation settlement with Zimmer. The deal ends the patent infringement dispute between the companies.

European Colour, unchanged at 15p, saw Peter Gyllenhammar, the Swedish value investor, raise his stake in the chemicals group to 15.4 per cent. Mr Gyllenhammar has had a run of back luck since the start of the year and could do with backing a winner. The collapse into administration of Carbo and Gaskell, where he had major stakes, left him seriously out of pocket. Nevertheless, the last time he was involved with European Colour the Swede made a profit of more than £1m. In 2003 he built a 29.7 per cent holding in the group at an average price of 20p and sold it soon afterwards at 28.5p.

Brammer gained 0.5p to 151.5p as Ian Fraser, the company's chief executive, bought 20,000 shares at 150p. There was also director share-buying at Gaming Corp, pegged at 13.5p. Justin Drummond, the online gaming group's chief executive, bought 180,000 shares at 13.25p. This comes aftersignificant buying from directors this week. XP Power dropped 5p to 374p as brokers struggled to clear a sizeable seller from the market.

RAB Capital added 6.25p to 46.75p as the market responded to Wednesday's news that the hedge fund manager had raised $55m for a new energy fund. The amount of cash the company received from investors surpassed expectations. The fund will invest in pre-IPO energy companies throughout the world. Finally, CyBit improved 1.5p to 55.5p after the group announced two contracts worth £500,000.