Case for a break-up boosts Vodafone

A fresh twist on takeover speculation helped put Vodafone among London's biggest gainers on Wednesday.

Exane argued for a Vodafone break-up once its investment into data services winds down. That could mean Liberty Global buying Vodafone's European business, while the African and Indian divisions are packaged off to peers or private equity, the broker told clients.

Investor appetite for Vodafone shares should start to revive once Project Spring, Vodafone's £7bn network upgrade, delivers organic revenue growth, Exane said. And with Project Spring spending due to end this financial year, Vodafone's corporate structure will return to the agenda.

"As the complexity of Vodafone's business increases so do the diseconomies of scale," Exane said. "Vodafone could look radically different on a three-year view - either thanks to its own proactive initiative or to a reversal in the perceived food chain."

John Malone's Liberty Global has long been seen as Vodafone's number-one target. But Liberty's UK and German cable businesses are not essential for Vodafone, whereas customer demand for unified services will stretch Liberty's reliance on virtual mobile networks, Exane said.

Low borrowing costs "appear to provide oxygen" for a Vodafone offer, particularly as Liberty "is arguably as much a financial engineering company as an operating company", Exane said. It put a 270p target price on Vodafone, which added 1.6 per cent to 232.2p.

Weakness among the mining and oil stocks flattened the wider market, leaving the FTSE 100 up 6.16 points at 6,933.74. Better than expected interim results meant Sage led the risers, up 8 per cent to a 15-year high of 536p.

Talk of US interest in a UK-based oilfield engineer helped put the sector in focus. Hunting edged 0.8 per cent higher at 612.5p and Petrofac rose 0.8 per cent to 886p.

Aveva, the design software maker for marine industries, jumped 7.1 per cent to £18.75 on a revival of takeover speculation. The list of potential bidders included Emerson, which was last year rumoured to have looked at Aveva and has recently indicated a priority switch from buybacks to mergers and acquisitions.

Al Noor Hospitals hit a one-year low, down 5.2 per cent to 855.5p. The stock has dropped 13.8 per cent since mid April when a share sale by Ithmar Capital flopped, leaving Deutsche Bank holding a sizeable stake that it has been selling down ever since.

Consensus expectations remain too high for Al Noor given wage inflation, employee churn and new hospital opening losses, said Numis Securities.

Leading the FTSE fallers, Aberdeen Asset Management lost 4.3 per cent to 431.1p in the wake of Tuesday's results showing heavier than expected equity outflows. Merrill Lynch, repeating an "underperform" rating, said not to expect fund flows to turn positive before 2017.

Man Group, down 5.8 per cent to 172.9p, was mirroring the performance of its core AHL trend-chasing funds, which have fallen for five consecutive days.

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