Cookson Group Plc (CKSN), the world’s biggest maker of molds for metal, rose in London trading amid improving outlooks for steelmakers and takeover speculation surrounding industrial companies that have plummeted in value.
Cookson gained 15 percent to 138.5 pence, paring the stock’s loss in the past three months to 72 percent. “Several companies with distressed asset valuations are moving up very fast,” Panmure Gordon & Co. analyst Oliver Wynne-James said in a telephone interview today.
Investors may also be purchasing shares to close their short positions as they bet industrial companies such as London- based Cookson may the target of takeover bids from buyout firms. Cape Plc (CIU), a U.K. company which provides fire protection and cleaners to energy and chemical clients, today confirmed it had received approaches from potential financial buyers. Cape had fallen 83 percent in the three months before today.
“If private equity companies are looking, as they’ve been doing with Cape, they’ll be looking across the board at other companies on highly distressed valuations, and that includes Cookson,” Wynne-James said.
Cookson has slumped since the beginning of September as the worst global financial crisis since the Great Depression curbed demand from construction companies and carmakers for steel, damped prices and prompted mills in Asia, Europe and the U.S. to cut output. Cookson’s Ceramics business, which makes up three- quarters of the company’s earnings, gets about half its sales from the steel industry.
“Things have loosened up in the steel industry a bit,” Wynne-James said. “Things are looking a tad brighter than they did a few weeks ago as it seems there’s the ability now for the steelmakers to get back to a reasonable level production after destocking,” the analyst said.
“If you add to that some bid speculation, then you’ve got a great recipe for buying and/or covering your shorts.”
A short position involves borrowing shares and selling them on the expectation that they can be repurchased later at a lower price before paying back the loan, with the borrower pocketing the difference.
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