Shares in the FTSE-250 radio broadcaster were up by 6% at 470p yesterday afternoon, outperforming the rest of the market by around 12% so far this quarter. GWR's shares were also up 3.6% at 266p.
Radio stocks were among the media sector's worst performers last week after Emap, owner of Kiss FM, said that radio advertising continued to be slow in the three months to June 30.
Capital's broker Cazenove said that the pricing dynamic in the London market had moved to Capital's favour. The broker said that Capital was poised to deliver about £150m in revenues each year under certain conditions.
"Capital now needs to show that it has stemmed audience attrition at 95.8 FM in London and we see this as a potential catalyst for the stock," it said.
Dealers claim that the shares also support hopes for consolidation. In January this year, it was reported that Capital and GWR were in talks about a possible merger, worth £840m, following meetings between GWR chairman Ralph Bernard and Capital Radio group chief executive David Mansfield. At the time, GWR denied that it was in talks with Capital.
According to weekend reports, Capital had also approached Daily Mail & General Trust about buying its 29% stake in GWR earlier this year. Both parties declined to comment.
A merger would bring together Capital's 95.8 Capital FM, Century and Xfm stations with GWR's Classic FM, London News radio and a local network of stations including Mercury FM, Coast FM and Buzz 97.1.
Talks of radio mergers have been on the cards since the Communications Act came into force in July 2003.
Last year, the Guardian Media Group was being tipped to bid for Capital. GMG expanded its radio interests with the £44.5m acquisition of Jazz FM. Its other radio interests include Real radio in South Wales, Central Scotland and Yorkshire, and Scot FM.
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