Caution from CSFB puts the brakes on rally

Click to follow

Fears that mmO2 is facing stiff competition from some of its rivals hit the mobile phone group's shares yesterday and left them among the worst performers in FTSE 100. Investors were unsettled by an investment note from Credit Suisse First Boston that suggested the market may not have heard the worst about competition for the group in Germany and the UK.

Last month evidence that Hutchison, a major threat for mmO2 in the UK, has been winning market share put the kibosh on a recent rally by the stock. Yesterday things became worse for the company as CSFB drew investors' attention to the fact that Hutchison is about to launch an advertising campaign of new prices for its 3 mobile services. The broker also suggested that mmO2 may soon find itself having an increasingly tough time of it in Germany as a local rival, E-plus, repositions itself. With near term news flow unlikely to make pleasant reading for mmO2, CSFB set a price target of 59p on the group's shares, which closed 1.25p lower at 56.75p yesterday.

However, on a longer-term view, CSFB was quite positive on the prospects at mmO2 as it assured investors that Hutchison's approach to rolling out its 3 services in the UK is unsustainable. As for the immediate future, mmO2 is today expected to host a presentation to City analysts at which, in the same way as Orange did last week, it will lay out its strategy going forward.

Elsewhere in the blue-chip index, Gallaher jumped 9.5p to 595p as the maker of Benson & Hedges cigarettes assured the market it will meet expectations for the full year and said recent exchange rate changes would be positive for the group. Despite increasingly difficult trading conditions for the industry in Western Europe, Investec Securities reckons Gallaher brands are well placed to weather any turbulence.

Meanwhile, bulls of Gallaher continued to push the old story that BAT is mulling a move on the group. The latest twist to an otherwise stale story pointed to last week's fund raising by BAT in the debt markets and suggested that the group could use the cash raised, long with its own impressive pile, to buy Gallaher. Last Wednesday, BAT raised Ê1bn (pounds 693m) through a euro bond and a further pounds 350m through a separate sterling-denominated bond. Gossips also suggested that the group could use the cash it raised to pounce on a foreign competitor. Its Franco-Spanish rival Altadis was one name doing the rounds of City dealing rooms yesterday.

BHP Billiton rose 9p to 319p after announcing that it had discovered oil at its second well in the Chinook prospect in the Gulf of Mexico. BHP has had a great run of late. The Chinook discovery marks the fifth deep-water find for the group this year.

The FTSE 100 index finished the day 36.6 points lower at 4,031.2 as Wall Street went south in early trade across the Atlantic. Traders were particularly unsettled by the fact that the Dow Jones industrial average failed to return to above the 9,000 level after last week's drop.

Although Scottish & Newcastle finished the day 5.5p lower at 366.5p, dealers reported heavy buying of the stock late on in the day ahead of today's full-year results. Market gossips reckon the numbers will not disappoint. As it stands, analysts expect pre-tax profits of about pounds 500m from S&N and forecast the group's Hartwall acquisition will make a maiden contribution. Meanwhile, shareholders are hoping for an update on the sale of S&N's pub estate, which consists of 1,450 outlets. The estate was put up for sale earlier this year with a price tag of pounds 2.3bn and the pubs giant Mitchells & Butlers is viewed as the most likely to buy it.

Marconi, off 1.5p at 61.5p, unveiled a contract win from BT Group that will see Marconi support the roll-out and development of the telecoms carrier's broadband strategy in the UK. Analysts at Credit Suisse First Boston returned from a meeting with the management team of Tomkins, 1.5p lower at 227p, and assured clients that all is going to plan at the group. The management of Tomkins is believed to have assured CSFB that it is on course to meet forecasts for the current year.

Robert Wiseman Dairies ticked 1p higher to a fresh year high of 217p amid whispers that Thursday's AGM statement from the group will be upbeat. Word has it RWD will announce that trading over the past few months has been ahead of budget. Lower down the pecking order, Armour Group jumped 2.5p to 28p after the in-car entertainment provider boasted that it was on coarse to beat market expectations for the full year after a strong third quarter.

Kewill Systems ticked 3.5p higher to 49.5p thanks to news of a major contract win for the software group. Kewill yesterday announced that it has been selected to manage supply chain executions for JD Williams, the UK direct-shopping giant, in a deal that analysts estimate could be worth pounds 300,000 to the group.