BAE Systems shrugs off fears of Alvis bid battle

Concerns that BAE Systems is to launch a counter offer for the defence group Alvis, where it already has a 28 per cent stake, have weighed on its shares recently. Credit Suisse First Boston dismissed such a scenario outright yesterday and this helped revive the BAE stock, leaving it as one of the best performers in the FTSE 100, up 5p at 190.5p.

Concerns that BAE Systems is to launch a counter offer for the defence group Alvis, where it already has a 28 per cent stake, have weighed on its shares recently. Credit Suisse First Boston dismissed such a scenario outright yesterday and this helped revive the BAE stock, leaving it as one of the best performers in the FTSE 100, up 5p at 190.5p.

"We believe BAE will not bid for Alvis, although the shares appear to have been marked down on this prospect," declared the Swiss-owned broker. In a bullish circular to clients, CSFB went on to note that the strength of the oil price, amid ongoing tensions in the Middle East, is very positive for BAE. Saudi Arabia, a major client of the company, raises cash for its defence programme by selling fixed amounts of oil on international exchanges. With the price of crude rising, so will these revenues, leaving it with more money to spend the latest defence kit on offer from BAE.

Meanwhile, newsflow out of BAE has been rather positive in recent weeks and CSFB believes this is yet to be adequately reflected in the company's valuation. Only last week the group confirmed that India's £800m Hawk jet order had progressed to the stage of becoming a binding contract. There should be more good news to come for shareholders. The defence group is expected to appoint a new chairman at May's annual meeting, which CSFB forecasts will buoy sentiment towards the stock. The broker yesterday set a 225p price target on BAE.

Elsewhere, Lloyds TSB rose 4.75p to 409.75p after Eric Daniels, the bank's chief executive, was heard to have had a bullish meeting with analysts at UBS on Monday night.

The wider FTSE 100 index dropped 15 points to 4,318.5

Among telecoms, a spokesperson for mmO2 denied rumours that the mobile phone group is in bid talks with Japan's NTT DoCoMo or any other group. Despite the denial, traders remained convinced that the company will soon be taken over and piled into the stock, pushing it 2p higher to 99.5p. "There are no talks going on. We're concentrating on organic growth," said the spokesperson. Since KPN's offer for mmO2 last month, which the UK group rejected, trading in mmO2 shares has been dominated by speculation of a new bid for the company.

HMV, unchanged at 217p, was held back by Deutsche Bank, which told clients that the group's share price is unlikely to rise any further following its recent strength. Shares in the music retailer have risen by 42 per cent since November and presently trade at just below their all-time high. The main reason for this has been the turnaround in the US music market, which has registered growth in each of the past five months, in contrast to four years of decline. Deutsche believes investors may be getting a bit carried away and downgraded HMV to "hold" from "buy". It warned of potentially tough times ahead for the UK music industry. "One of the main reasons for the four years of decline in the US market was broadband access and the fact that PCs with CD burners achieved mass market penetration in America. This is only just starting to happen in the UK, so the adverse impact is still to come and the UK music market may continue to decline, even if the US market continues to recover," said the broker.

Suggestions that trading at Somerfield may not be living up to City expectations sent the stock 6.24p lower to 159p. Shares in the supermarket group trade on a particularly demanding rating when compared to the wider sector and would come under very heavy selling pressure if the group were to disappoint investors. Somerfield trades at 18 times next year's earnings while Tesco, by far the more successful company, trades at just 15 times.

Among small caps, Crc Group fell 6.5p to 157.5p after the sale of 17,000 shares at 160p by Patrick Thompson, a director at the mobile phone repairs specialist. Delta ticked 0.5p higher to 90.5p after Charles Fisher, a non-executive, bought 40,000 shares in the speciality chemicals group at 90p. Ark Therapeutics fell 2p to 129p as a large overhang of stock weighed on the company's valuation.

Mayflower dropped 2p to 8.25p as brokers struggled to clear a large seller from the market. There was also vague talk that the auto parts group is poised to unveil a rescue rights issue before the end of the week but sources close to the company poured cold water on this suggestion. Legendary Investments, run by Shami Ahmed, the founder of the Joe Bloggs clothing label, raised £500,000 via a placing at 0.5p. Legendary fell 0.05p to 0.67p.

Plasmon fell 13.5p to 230.5p after a profit warning. The technology group complained that slower than anticipated shipments of its UDO product and the weakness of the dollar had hit the company's performance. Plasmon generates around two-thirds of its revenues in the US while even some non-US sales are dollar denominated.