After recent declines, leading shares are moving higher again, with Rolls-Royce roaring ahead after it took control of a power systems joint venture.
The aero engine maker announced after the market closed on Friday that it was buying out the stake held by Daimler, the German carmaker, in the Rolls-Royce Power Systems partnership. Daimler has exercised its right to sell its shareholding to Rolls, which will pay for the stake, said to be worth around £1.9bn, with a mixture of cash and debt.
Rolls has jumped 27p to £10.53, but Finnish engine maker Wartsila has fallen back as analysts said Rolls was now less likely to bid for the business. In a buy note Liberum analysts said:
Rolls has ample liquidity to fund [the deal] from existing facilities. Our 2015 earnings per share will increase by around 7% to 77p but our sum of the parts valuation falls by 75p to account for the reduction in cash offset by an increase in value for 100% control. Questions will be raised on timing but an equity raise for another industrial like Wartsila now seems more unlikely.
Overall markets have shaken off a slide in Asian markets following poor export data from China over the weekend and continuing concerns about the situation in Ukraine. So despite the worries, the FTSE 100 is currently 31.29 points higher at 6743.96.
Toby Morris, senior sales trader at CMC Markets, said:
You might have expected more of a negative reaction from European markets this morning given the weekend's events, but equities remain defiant despite rising concerns in both China and the Ukraine.
Chinese stocks were down 3% overnight after suffering on more than one front from the weekend's news. Exports sank 18% in February against average estimates of a near 7.5% rise, casting further doubts over China's ability to hit the 7.5% growth target set by Premier Li. However the greater concern may well be debt, with Friday marking the first default in China's corporate bond market from Shanghai Chaori Solar Energy. Bulls will hope that the decision to allow the failure shows a hard stance from Beijing that might curb reckless lending, but "debt crisis" is a term that still strikes fear into the majority of investors and in the short term Chinese markets seem more that a little concerned of what is still to come.
Mining stocks have been hit by the concerns about a slowdown in China, a key consumer of commodities.
Fresnillo has fallen 29p to £13.76, while BHP Billiton is down 27p at 1821.5p and Antofagasta has lost 12p to 865p.
Elsewhere Vodafone is 3.7p lower at 234.95p after reports it had offered €7bn for Spanish cable company Ono.
Back with the risers, paper maker Mondi is up 27p at £11.18 after Citigroup moved from neutral to buy and raised its price target from £11 to £12.60. Citi said:
Mondi continues to deliver rising returns (return on capital employed of 17% forecast for 2014), strong earnings growth (18% year on year underlying earnings per share growth and 7% EBITDA growth in 2014) and rising dividends at an attractive valuation, on our estimates.
Pharmaceuticals group Shire is 64p higher at £33.20 following news that Barclays had lifted its price target from £32.75 to £36.
