Market Report: BAT flies high on prospect of legal victory

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The Independent Online

The tobacco titan put on 17p to 1,172p as market professionals hinted that a decision on the Engle and Price class-action suits, which combined could cost the industry as much as $155bn (£85bn), are imminent and are likely to be favourable to the US tob-acco players.

BAT is exposed to these legal proceedings because of its 42 per cent shareholding in the local cigarette giant, Reynolds American. Michael Smith, an analyst at JP Morgan, expects a ruling from the State Supreme Court on the Engle and Price cases before the end of October, adding that adecision could come as early as today.

Mr Smith said yesterday: "We continue to expect both cases to be dismissed by the appeal courts. We base this view on more than 30 decisions by other senior appeals courts." Such a development would be great news for BAT and would leave the tobacco maker and its American peers facing a lawsuit from only the US Department of Justice.

When filed in 1999 it was feared the suit could cost the tobacco industry as much as $280bn, but since then estimates have been moderated. Analysts now believe this legal action is unlikely to cost the industry more than $10bn.

However much it costs the likes of BAT, the ultimate price will be paid by smokers. This is because tobacco firms have little trouble passing on extra costs to consumers, and analysts predict a rise in the price of a pack of cigarettes by 10 cents will easily cover $10bn of legal costs.

Elsewhere, Vodafone rose 2.5p to 152.5p as Morgan Stanley ushered its clients into the stock beforean analysts' day due to be hosted by the mobile phone giant next week. The US broker is convinced that Vodafone continues to grow and take market share in Europe, which should become apparent at next week's presentations by the company to the investment community.

Wolseley was also boosted by positive broker comment. Shares in the building-materials group rose 13p to 1,163p as Citigroup slapped a "buy" recommendation on the stock and set a 1,300p price target. It reckons there is plenty of scope for Wolseley to continue to increase its market share in the US plumbing and building materials arena. As for the company's UK operations, Citigroup believes Wolseley can continue to deliver modest growth despite a likely slowdown in this market.

The wider FTSE 100 rose 9.4 points to 5,347.4 as buyers returned to equities after Tuesday's bout of profit-taking. In the FTSE 250, which closed 29.8 points better at 7,863.1, takeover rumours pushed Laird Group 19.75p higher to 364.75p. The talk is not new.Just a few weeks ago shares in the electronics group were driven higher by traders who were convinced that a US player was about to pounce on the company. Earlier this week, Laird revealed a 15 per cent rise in underlying interim profits.

Gossips also talked of a possible bid for MFI, 5.5p better at 121p in heavy volume, from a private-equity player. Likewise, Computacenter was driven 14.5p higher to 214.5p by hopes that its days as an independent entity may be numbered.

Lower down the pecking order, Monstermob fell 3p to 452.5p after two sizeable director share sales. David Marks, the finance director at the mobile phone content provider, sold 250,000 shares at 440p while Niccolo De Masi, the chief operating officer, disposed of 300,000 at the same price.

Biofuels finished 0.5p higher at 150p, although trading was dominated by a tussle between long-term bulls and bears of the stock. The company, which turns palm oil into an additive that makes diesel fuel more cost effective, is building a manufacturing facility in Teesside.

In July, Biofuels promised that the plant would be up and running by the end of this month, but bears of the stock believe it will fail to meet this deadline. Some suggest that should such a scenario come to pass Biofuels will have to raise fresh cash from the market.

Meanwhile, Biofuels bulls are convinced that all is on track at the group. They argue that if the company was experiencing delays it would have told the City about them by now. The group is set issue a statement to the market on Monday, in which all will be revealed.

On a brighter note, Asia Energy ticked 2.5p higher to 707.5p after getting environmental clearance for its open-pit coal mine in Northern Bangladesh from the country's government. Cambrian Mining, which has a 25 per cent stake in Asia Energy, climbed 1.5p to 170p.