Investors, on the other hand, will be celebrating. The shares rose 26p to £21.43 yesterday, on the hope that this could finally put an end to an ongoing price war in Spain. British American Camel Tobacco also ticked up 33p to £27.87. Analysts applauded Imperial’s stance although Citigroup urged caution: “While we expect the rest of the industry to follow Imperial’s lead on prices, we can’t be certain.
It may be that the rest of the industry wants to wait for a while to see if the government will change the tax system.”
The analysts retained a buy rating on the stock with a target price of £23. In the wider markets, there was a sense that the mood was shifting as brokers turned bullish on European stocks.
Nomura increased its recommendation from neutral to overweight, while Deutsche Bank upgraded its tactical view on European equities to positive.
They expect the global economy to pick up in the fourth quarter, as the impact of the higher oil price and Japan’s tsunami diminish. “Risks around oil have moderated,” they said, “And consensus growth expectations have been revised down sufficiently.”
The blue-chip index pushed past the significant 6,000 mark for the first time since May, although volumes were weak because of the US holiday for Independence Day.
The FTSE 100 closed up 27.78 at 6,017.54, while the mid-cap index ended the day 61.99 higher at 12,102.27.
Low volumes and little activity set traders dreaming of M&A. Yesterday’s rumour suggested either Procter & Gamble or Unilever would buy Reckitt Benckiser for around £50-a-share.
Competition issues over any acquisition would mean the eventual buyer would have to break up Reckitt, and the suggestion was that Colgate Palmolive could mop up any remaining parts. Reckitt shares ticked up 35p to £34.88, while Unilever was 25p higher at £20.37.
There was also talk that Dragon Oil, a £2.7bn oil producer with operations in the Caspian Sea, could be bought out by its biggest shareholder, the Emirates National Oil Company, for 700p-a-share. Rumour had it that China’s state-owned oil company CNOOC might also be interested in the company, driving the shares up 42½ to 550½p.
In the UK, property stocks rose with the market. British Land put on 14 to 629½p on the back of a bullish note from Deutsche Bank. The analysts said they expect the group’s share price to “appreciate considerably” over the next 12 months as the value of its properties increase.
They said the company is well placed to buy distressed property loans from the banks. They added that British Land has a better portfolio than Land Securities – up 14 at 880½p – with less central London offices and more out-of-town retail properties. Deutsche rates British Land a buy with a price target of 820p.
Broker comment also lifted temporary power provider Aggreko 36p to £19.80. Citigroup raised its target price from £17.33 to £23. The analysts said the company’s International Power Projects (IPP) should continue to grow on the back of three drivers – electricity consumption in non-OECD countries, potential in untapped countries, and extensions of existing contracts.
The top blue-chip riser was engineering group John Wood, which continued last week’s rally. It ended the day up 22.73 at 694p. The company was lifted by a mid-week trading update and an upgrade by Goldman Sachs from neutral to buy.
Rival Weir Group ticked up 44p to £21.85 in sympathy.
In corporate news, Essar Energy rose 6.1 to 422.1p after confirming that a meeting to rubberstamp its acquisition of an oil refinery in Cheshire would take place later this month.
On the downside, banks wobbled as fears of a Greek default re-emerged. Ratings agency Standard & Poor’s warned that French proposals for the Greek debt rollover could push the country into default.
British banks would suffer little direct impact from a Greek default, but rather a second order effect as a result of their close ties with French and German banks, which have substantial investments in Greece.
Lloyds dropped 0.94 to 49.88p. Barclays lost 2.85 to 262.7p, and HSBC fell 2.1 to 627p.
Royal Bank of Scotland fell 0.58 to 39.11p, edging further away from the 50.2p level that would mean the Government would break-even on its near £15bn investment in the bank.
Cairn Energy was the top faller, losing 13.8 to 404.7p, after negative comments from JP Morgan.
The analysts cut their target price on the stock from 500p to 480p after Cairn dropped the price of the stake in Cairn India that it is selling to Vedanta.
Premier Foods was the biggest riser on the mid-cap index, although it gained only 1.63 to close the day at 18.71p.
Martin Deboo at Investec said: “Given the drubbing it had on Thursday and Friday last week, a dead-cat bounce is to be expected.” He put out a note on Premier with a hold rating and 20p target price.
Reports also emerged yesterday that the chief executive of Birds Eye Iglo, Martin Glenn, had turned down an offer to head up Premier Foods.
Another riser was engineering group Charter International, which added to Friday’s gains, ticking up 12 to 828½p.
The company has turned down a 780p-a-share offer from Melrose. UBS raised its target price on the stock from 550p to 850p.
M&A speculation also helped lift the London Stock Exchange 26p to £10.59. Weekend reports said senior executives at US exchange Nasdaq were meeting in New York to plot a £3.4bn merger with the LSE.
In smaller tech stocks, enterprise software company Kofax ticked up 19 to 464p after Espirito Santo Investment Bank reiterated its buy rating on the stock and boosted its target price to 612p from 551p, ahead of the company’s pre-close update.
