Market Report: Licence agreement gives Imagination a boost

With analysts saying it was "back in the game", Imagination Technologies rocketed up more than 15 per cent after revealing its technology had been chosen for a new chip.

The group has been under pressure recently, losing 40p over the past four sessions, but yesterday it rose 54.1p to 393.5p following its announcement that it had signed a licence agreement with STMicroelectronics.

The deal means Imagination's graphics processor – which has been given the code name "Rogue" – will be used by the European electronics company in its new flagship chip designed for tablet devices and smartphones.

Highlighting bullish comments on the performance of the new chip, Morgan Stanley welcomed the news by reiterating its "overweight" advice on Imagination.

"We continue to believe that graphics processors are a key differentiator for tablets and smartphones going forward," the broker's analysts added.

They also pointed out that ARM Holding's technology will still be used in lower-end products, meaning the news is "not that negative" for the rival chip-maker. However, it still slid back 28.5p to 622.5p in a rare retreat for ARM – up nearly 50 per cent on the year – which was not helped by its chief executive selling more of his shares.

Overall, a poor performance by the miners, plus disappointing retail figures from the US, helped the FTSE 100 to close 23.01 points lower at 6,037.08. Anglo American had its recommendation cut to "hold" by Citi and dropped 130.5p to 3,306.5p, while Antofagasta and Rio Tinto were down 58p to 1,428p and 132p to 4,550p respectively.

Barclays managed a strong start to the bank reporting season, topping the blue-chip index by climbing 18p to 328.75p after its final results beat expectations. Many of its peers were helped as well, with Lloyds Banking Group advancing 1.18p to 66.88p and Royal Bank of Scotland 0.98p better off at 45.25p. However, HSBC failed to join the rally, edging down 6.3p to 701.6p.

Investors welcomed Wm Morrison's £70m purchase of the baby products retailer Kiddicare, leaving it 5p stronger at 280p. Pointing out that the supermarket "bills the acquisition of Kiddicare as the first stage of its e-commerce strategy", Shore Capital dismissed the idea of its next move being a bid for Ocado, which shifted back 7.9p to 251.1p.

The broker also added that a boost of Kiddicare's growth potential may give Mothercare "something to think about in the baby product market", and it shed 12.7p to close at 497.3p.

International Power climbed 1.9p to 338.8p as the benefits of its tie-up with GDF Suez – completed earlier this month – were highlighted by HSBC. The broker said the deal, estimated by some to be worth nearly $26bn, has resulted in a "unique proposition amongst European listed utilities: a pure generator with a well-spread global reach".

Elsewhere, Smiths Group dipped 25p to 1,400p as Citigroup said that speculation of a break-up "has driven the valuation beyond a realistic sum of the parts" and reduced its rating to "sell".

Although its analysts did not dismiss such a move completely, they added that the group "is not likely to be bought as a whole and any break-up would be complicated and take time".

Micro focus found itself in freefall, plummeting more than 26 per cent, after it issued a profit warning. The Berkshire-based software company moved down 104p to 291p as it revealed it had been hit by the collapse of a number of US deals and reduced its revenue forecast for the full year.

Also falling on the second line after an update was Domino's Pizza, knocked back 20.5p to 502.5p, with it announcing its sales growth had slowed since the turn of the year.

Elsewhere, Pennon – 5p lower at 624p – managed to meet forecasts despite the disruption caused by the extreme weather at the end of 2010. Sentiment in the rest of the sector was poor as well, with United Utilities retreating 4p to 573.5p and Northumbrian Water 4.4p behind at 313.2p.

Premier Foods topped the mid-tier index by adding 3.65p to 25.75p following its final results, in which it said it had managed to reduce its net debt.

Meanwhile, Heritage Oil jumped up 5.3p to 299.8p thanks to vague takeover talk re-emerging late in the session – according to the latest speculation, the oil and gas explorer could soon receive an approach worth 450p a share.

Among the small-cap companies, HMV fell 1p to 22p as it was urged to "think revolution, not evolution". The plea came from Altium Securities, which said the struggling high street retailer "needs to be aggressive" and that "a restructuring of HMV could produce a sustainable business".

As well as a rights issue, the broker's other recommendations included the disposal of both a significant number of its stores and the Waterstone's business, plus the building of "a more convincing, fully integrated multichannel strategy".

Yell Group lost 1.06p to finish at 8.85p as the publisher of the Yellow Pages said it would fail to meet market expectations for the full year.