Market Report: Kraft bid talk helps Cadbury to stand firm

Cadbury firmed amid renewed chatter regarding the prospect of a bid from Kraft, the American foods giant. The confectioner's shares closed 1.3 per cent or 7p stronger at 554p after Panmure Gordon highlighted the possibility, saying the market was underestimating the likelihood of an approach. "Along with biscuits, confectionery is Kraft's largest international focus category. Kraft has spent $28bn on biscuit acquisitions, but it is yet to move in confectionery," the broker said.

"Cadbury, to us, is a perfect complement to Kraft's strengths, would give it exposure to high growth gum and an emerging markets business around 70 per cent larger than its nearest rival."

The current valuation did not anticipate an offer, Panmure added, raising its target price for the stock to 645p from 625p after assigning a one-third probability of an 800p per share bid.

Overall, the FTSE 100 remained strong, rising by almost 1 per cent or 37.55 points to 4,481.17, while the mid-cap FTSE 250 index advanced to 7,742.58, up 1 per cent or 75.95 points. Last night's run marks the FTSE 100's seventh positive session in a row – its longest winning-streak in four years.

Retailers were in focus, following upbeat updates from Morrisons, which gained more than 8 per cent or 20.75p to 274p, claiming pole position on the Footsie, and Next, which fell back under the strain of profit-taking, easing to 1618p, down 1.6 per cent or 26p. In the wider sector, J Sainsbury was 3.1 per cent or 9.75p stronger at 326p, while Marks & Spencer, like Next, buckled under the pressure of profit-taking, easing to 326p, down 1.2 per cent or 4p.

Over in the banking sector, JP Morgan weighed in on British investment banks, saying regulatory moves "may not be as harsh as some feared and should stop short of full separation of investment banking and retail banking activities, or even ring fencing".

Leading stocks were mixed, with Barclays easing to 309.3p, down 1.2 per cent or 3.7p, HSBC relaxing to 550p, down 1.6 per cent or 9p, but Royal Bank of Scotland firming up by 0.025p to 39.82p.

Tullow Oil was broadly unchanged, rising slightly to 955p, up 3.5p, after Macquarie weighed in, raising its target price for the oil explorer & producer's stock by 40 per cent to 1400p, saying it saw a "number of value creation catalysts in the handful of defined exploration and appraisal wells" to be drilled in the second half of the year.

"We also look forward to better understanding the potential of the Liberian, Guyana and Tano Basins, to be more extensively drilled in 2010," the broker said, reiterating its "outperform" recommendation on Tullow.

Further afield, GKN advanced to 88.5p, up more than 7 per cent or 6p, thanks to Goldman Sachs, which added the stock to its widely followed "conviction buy" list.

"As balance sheet concerns have been addressed through the rights issue, and pension risk is fully captured in our valuation (we assume a £400m increase in the deficit), we believe the current share price offers an attractive entry point," Goldman said, scaling back its target price for the stock to 110p.

On the downside, gaming stocks were thrown off course by Playtech, the online gaming software provider, which spooked the market by warning on full-year trading, owing to a slower than anticipated start to the year at William Hill Online, a joint venture between Playtech and William Hill, and the impact of the challenging economic environment on some of its licensees. The negative read-across unsettled William Hill, which was 4.2 per cent or 8.5p behind at 191.75p.

In the wider gaming space, Partygaming was 3.9 per cent or 9.5p weaker at 237.5p, while 888 Holdings fell to 89.75p, down 4 per cent or 3.75p. Playtech was 24.2 per cent or 109.25p lower at 343p.

The housing sector was mixed, with some, including Barratt Developments, up 3.25p at 177.75p, firming up, but a number of others, including Bellway, down 2p at 708p, falling back as investors banked profits.

A new circular from Cazenove highlighted the temptation, saying: "We remain positive on the sector and believe that newsflow will, in the main, support our upbeat views, however, after a period of such strong performance and with several house builders trading around trough book values, some investors may decide to take profits."

Elsewhere, Blacks Leisure touched a session low of 46p, down 6.1 per cent, after Altium Securities switched its stance on the stock to "sell" from "hold". The broker said it had lowered its forecasts, which in turn had led to a reduction of its target price to 43p.

"That would be sufficient to justify a move to a negative recommendation," Altium said. "In addition, we would flag the possibility that Blacks might choose to top up the banking line it hopes to secure in the near future with some equity that would allow it accelerate its exit from Boardwear and allow faster development of the two Outdoor chains." Despite the assessment, Blacks recovered to 50p, up 2 per cent or 1p, by the close.