Smith & Nephew climbs on revival of bid talk

A retread of Smith & Nephew bid speculation helped put the medical device maker among Friday's gainers.

S&N climbed 2.3 per cent to £11.43 after Credit Suisse argued that the current valuation "implies almost no probability of an industry merger".

Johnson & Johnson has been widely rumoured to have weighed up a bid for S&N while Stryker last year admitted its interest then appeared to change tack in March by setting up a $2bn share buyback fund.

The next moves may be on pause ahead of the US Federal Trade Commission's ruling on Zimmer's purchase of Biomet, expected this month, dealers said.

Credit Suisse told clients: "There is ongoing M&A activity and industry consolidation in orthopaedics. In this process, S&N holds potentially strategic value for certain US companies that have business overlap in large joints, trauma and sports medicine.

"Using industry typical merger synergies [...] we mechanically calculate a value of such synergies at circa 250p to 300p per S&N share."

A rally among the miners meant the FTSE 100 ended up 0.4 per cent, rising 25.32 points to 6,985.95 in relatively thin trading. For the week, the index was down 1.2 per cent.

Miners rebounded in tandem with the copper price with further help from Vale, the world's biggest iron-ore producer, which said it would consider cutting output.

Rio Tinto was up 3.9 per cent to £29.97, BHP Billiton rose 3 per cent to £16.08 and Anglo American advanced 5.4 per cent to £11.65.

Leading the gainers, Lloyds Banking climbed 7.1 per cent to 82.9p after better-than-expected results helped bolster hopes of shareholder cash returns starting within the next 12 months.

Fund managers led the fallers with Aberdeen Asset Management down 2.5 per cent to 463.1p ahead of results due May 5.

Flows from US investors into European equity funds dropped sharply this week and demand for emerging market equities remain well below levels during the volatility of late 2014, said Goldman Sachs.

Esure rose 4.4 per cent to 227.7p and Admiral took on 2.4 per cent to £15.96 on recommendation upgrades from Barclays.

UK motor insurance pricing has reached a trough after three years of declines and, while 2015 earnings forecasts are still too high, share prices can still re-rate on a 2016 recovery, Barclays argued.

Barclays also argued that, put against peers, Esure's GoCompare price comparison website should be worth £391m.

That suggests Esure's core UK business is being valued at just 7.7 times 2016 earnings compared with Admiral's core valuation of 16 times earnings, it said.

Numis Securities's "buy" advice with a 329p target price helped IP Group, the university intellectual property incubator, rise 4.1 per cent to 205.1p.

Numis argued that Oxford Nanopore, the developer of a molecular sensing system on a USB stick, is worth $3bn, meaning IP's 19.9 per cent stake alone should be valued at three times the current net asset value of 24p per share.

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