Market Report: Broker boost helps BAT fly to top of FTSE 100

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The Independent Online

Morgan Stanley expects Thursday's first-half figures from BAT to make pleasant reading for shareholders. Which is why it urged investors to pile into the tobacco giant, helping BAT close at the top of the FTSE 100 leader board yesterday. Its shares rose 28p to 1,076p.

"We expect the results to demonstrate continued organic progress and the benefits of the company's cost-cutting programme," the US broker said, which forecasts BAT to deliver a 5 per cent jump to £1.26bn in interim pre-tax profits.

Morgan Stanley pointed out that the cigarette maker is a major beneficiary from the recent strength of the US dollar against sterling and so raised its earnings forecasts for next year. BAT can certainly be described as a cash cow and the heavyweight broker believes it should not be long before the group uses some of its cash reserves for a new share buy-back programme.

The group's shares trade at a discount to its peers, and this state of affairs is unjustified, says Morgan Stanley. It hopes BAT stock will soon rise to a modest premium to the rest of the sector. Meanwhile, the FTSE 100 gained 28 points to close at a new three-year high of 5,270.

Dresdner Kleinwort Wasserstein was heard telling its clients that Saint-Gobain needs to offer BPB shareholders about 750p a share if the French group's bid for the plasterboard maker is to be successful. Dresdner said: "We do not believe BPB shareholders will put management under pressure unless the offer is at least about 750p." The German broker is convinced that Saint-Gobainhas the ability to fund such a deal.

Cranswick gained 10p to 615p as brokers applauded a bullish trading statement from the food producer at its annual meeting. Among them was Investec Securites, which argued that Cranswick shares offer the best value in the sector. Nord Anglia jumped 11p to 145.5p on rumours of a bid for the group from a private equity player. Analysts think Nord Anglia would make a great target for a financial buyer because of its extensive property assets.

Bid rumours also rocketedRegal Petroleum 10.5p higher at 142p and Empire Online 2p better at 209.5p. Takeover rumours have surrounded Empire Online since it floated last month. Gossips reckon PartyGaming, 3p higher at 160p, is the most likely buyer of Empire as it is the group's biggest customer.

DAT crashed a 57.5p to 105p after the software company slashed its sales forecasts and warned that it would not be profitable this year. Before the disaster, the stock was very much a favourite of City punters. So much so that they bid the company's shares up to 530p in March. The fallout from DAT has punished punters and some were forced to lock in gains from other profitable positions to make up for the losses they suffered betting on DAT.

Hence, Neteller fell 10p to 762.5p, Biofuels retreated 10p to 170p and Pursuit Dynamics gave up 6.5p to 195p. The trio are a favourite of punters, who usually bet on them using contracts for difference. These derivatives allow investors to place big positions in the market with a relatively small outlay of cash. When bets go right for them they can make significant gains but, equally, when things turn sour losses quickly spiral.

It was another bad day for Bede, down 2.5p to 18p, and Newport Networks, off 13p at 70.5p. Evolution Securities is broker to both, and investors have abandoned the duo en masse over the past month. They are particularly unhappy Bede's recently issuedprofits warning, which came less then three months after Evolution raised £9m for the electronics group through a placing at 39p. Any investor who got involved with that funding raising is now seriously out of pocket.

Meanwhile, PlaneStation, another Evolution Securities client, suffered a share suspension at 5.62p after its bankers withdrew their support for the airport operator. Analysts fear the company will struggle to avoid going into administration.

First Africa ticked 0.25p higher at 11.5p as a large seller was cleared from the market. More than 230 million shares in the oil explorer changed hands, with some suggesting that a US hedge fund has built a sizeable position in the stock. Bright Things added 2p to 151.5p on continued talked of a distribution deal in the US for the games-console developer.

Helphire, which provides replacement cars to people who have been in accidents, put on 15.5p to 273p after disclosing it is close to making a major acquisition.

Over on the lightly regulated Ofex market, Vicorp rose 3.5p to a new high of 186p after the voice-recognition specialist announced a contract win from Cable & Wireless. Word has it the group is considering a move up to AIM in autumn.