Newspaper article The Evening Standard (London, England)

B&B Price Falls as Bid Talk Switches to A&L

Newspaper article The Evening Standard (London, England)

B&B Price Falls as Bid Talk Switches to A&L

Article excerpt

Byline: MICKEY CLARK

MARKET REPORT CITY speculators are agreed that a bid for one of the UK's mortgage lenders is inevitable, but the identity of the target company is far from clear.

For months the hot money in the Square Mile has been riding on Bradford & Bingley, but the speculative support appears to be dwindling and that has been reflected in the share price which has fallen 10% during the past week.

That has provided broker Dresdner Kleinwort Wasserstein with the opportunity to take a closer look at B&B's fundamentals, which look favourable.

As a result, DKW has raised its rating on the shares from sell to hold and says the focus should now be on the group's sound business model.

Last month B&B told shareholders at the AGM that it was comfortable with the City's consensus pre-tax profit forecast of [pounds sterling]330 million. So DKW says it is in no rush to alter its top-of-the-range forecast of [pounds sterling]341 million.

It reckons the group seems to be an unlikely bid target, given that it is reliant on portfolio acquisition for half its mortgage lending, and it reckons a bidder would prefer to spend its money buying a distribution platform instead. DKW sees Alliance & Leicester as a more suitable takeover target, with Spain's Banco Santander Centro Hispano a more likely bidder given the tax advantages of such a move and the cost savings. With the help of DKW, the speculators got the message yesterday and chased Alliance & Leicester higher in a falling market. DKW has also been upgrading the utilities sector from neutral to overweight. It has raised from hold to buy its ratings on Kelda, Viridian and Pennon. It complains the sector has been damaged by higher bond yields, but the reality is the higher yields feed into higher returns for regulated utilities, and few of them have US dollar exposure. The high yields they boast also make them a defensive play should the market continue to weaken.

Kelda was expected to benefit from a more efficient balance sheet and return of cash to shareholders, while forthcoming results from Viridian were likely to be strong. …

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