Market Report: Bearish rumours swirl around BAT stock

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The Independent Online

Rumours that BAT is about to issue a profits warning weighed heavily on shares of the tobacco giant yesterday. The stock closed as the worst performer in the FTSE 100, down 47p to 1,263p, as the speculation circled City dealing rooms. The fact that Morgan Stanley was trying to sell a line of 5 million shares on behalf of an institutional client also weighed on BAT.

However, the group played down the speculation. The company said it was standing by the forecast it made in its third-quarter results unveiled just last month. These indicated that BAT should have no problem achieving high single-digit earnings growth in the years ahead.

A downgrade from Dresdner Kleinwort Wasserstein on Thursday also weighed on sentiment towards BAT going into yesterday's session. The German broker had cut back its stance on the stock to "buy" from "hold" and made some cautious comments about the near-term outlook.

But even after yesterday's drop, BAT shares are still up more than 40 per cent this year alone. Since 2000 they have risen by 400 per cent. This performance has been backed by strong profits growth at the tobacco group, especially in recent quarters when it has consistently topped City forecasts. Elsewhere in the sector, Gallaher dropped 8p to 890p while Imperial Tobacco lost 12p to 1,702p.

Meanwhile, the FTSE 100 finished the week on a positive note, gaining 12 points to 5,523 thanks to a solid start to trading on Wall Street. Lehman Brothers buoyed both PartyGaming, 3.5p higher at 108.75p, and William Hill, up 11p to 525.5p. On William Hill the US broker upgraded its stance to "overweight" from "equal weight" and told investors that part of the trouble the bookie has had recently has been down simply to bad luck. As for PartyGaming, Lehman slapped a 116p price target on the online gaming group.

In the retail sector, it emerged that Mike Ashley, the sportswear entrepreneur, had cut his stake in JJB Sports, unchanged at 171p. Mr Ashley's Sports World International company disclosed the sale of 6.8 million shares thereby reducing its holding in JJB from 9.6 per cent to 6.6 per cent.

Bodycote International fell 9.5p to 226p on the back of a downgrade at UBS. Cutting its stance to "hold" from "buy" the Swiss broker warned that the European and US car markets, into which the group sells its products, are facing uncertain times. UBS said: "We would like to see firm evidence of Bodycote's ability to manage the difficult auto situation in Europe and the US before chasing the share price higher."

The soft drinks group Britvic set a price range of 210p to 250p for next month's float. This will value the company at up to £537m. The group's top three shareholders - InterContinental Hotels, Whitbread and Pernod Ricard - will sell the bulk of the stakes at the float. According to the spread being offered by the financial betting firm IG Index, Britvic's float should get away at the top end of the range.

GCap Media fell 14p to 268p as a plethora of brokers turned bearish on the troubled radio group. Lehman Brothers warned that the company's plan to reduce the number of ads it runs on its Capital FM station was a very risky strategy. Misys dropped 5p to 219p as rumours of a bid for the software group waned. Dealers reported heavy demand for Cable & Wireless, 1p better at 122p, amid ongoing hope that the telecoms group will soon be bought by a larger player. For now, France Telecom is seen as the most likely predator.

BATM Advanced Communications, which on Thursday unveiled its largest-ever contract win, yesterday disclosed the sale of 10 million shares at 30p by Zvi Marom, its chief executive. Shares in the telecom equipment group held steady at 32.5p. BTG rose 3.75p to 225.25p as Evolution Securities applauded the technology group's new focus on life sciences and initiated coverage of the company with a "buy" stance. Investors should not be surprised if Evolution soon replaces Credit Suisse First Boston as broker to the company.

NSB Retail fell 0.75p to 34.5p despite talk of a bid for the software developer before the end of the year. Gossips even talked of a move on the company by Microsoft. Should such a scenario come to pass it would be the US software giant's first-ever acquisition of a UK-listed company.

Finally, Dowding & Mills ticked 0.5p lower to 18p as the engineering group's full-year results failed to include more details on the bid approach it received earlier in the week. On Tuesday, the company confirmed a 20p-a-share approach but cautioned that there was no certainty it would be enacted. On the results front, D&M unveiled a rise in annual pre-tax profits to £4.4m from £500,000 last time around.