Market Report: Broker drives Virgin Mobile below issue price

Those who bought into the Virgin Mobile float may find themselves wishing they had avoided the company altogether as it shares slumped below their 200p issue price yesterday. A spokesperson for VM was quick to note that the whole sector was under selling pressure and that is certainly true. MmO2 dropped 2.75p to 86p and Vodafone retreated 1.5p to 116.75p.

Those who bought into the Virgin Mobile float may find themselves wishing they had avoided the company altogether as it shares slumped below their 200p issue price yesterday. A spokesperson for VM was quick to note that the whole sector was under selling pressure and that is certainly true. MmO2 dropped 2.75p to 86p and Vodafone retreated 1.5p to 116.75p.

But things were made worse for VM by a bearish investment note from Commerzbank Securities. "The court judgment in March 2003 over a dispute between T-Mobile and Virgin contains information that, in our view, casts serious doubts over whether VM can sustain value, let along grow it," said the German broker, which set a fair value estimate of 180p on the stock.

According to Commerzbank, VM's success to date reflects T-Mobile's generous network rental terms, rather than VM's marketing and distribution prowess. It fears that the risk associated with an investment in VM will only grow with time. Investors should note that VM was unhappy with Commerzbank's note, which it not only described as "disappointing", but claimed that it contained a series of factual inaccuracies. Whether Commerzbank is right with its 180p valuation on the company only time will tell. Unconditional trading in VM starts next week.

Elsewhere, bid speculation was back, yet again, at Abbey National. Shares in the mortgage bank bucked falls across the sector to jump 13.25p higher to 493p as traders bet that the group's days as an independent entity were numbered. Meanwhile, Alliance & Leicester dropped 18p to 797.5p, Barclays retreated 16p to 444p, Bradford & Bingley lost 2.75p to 259.5p and HSBC gave up 14.5p to 795.5p. Last week there were faint whispers that Banco Santander, Spain's largest bank, was looking to tap the debt markets for cash, leading to talk that it may be about to move in on Abbey.

The heavy losses in the banking sector did the wider blue-chip index no good. The FTSE 100 closed 71 points lower at 4,309.3, which is an eight month low for the index. Reuters fell 5.75p to 335.75p after Goldman Sachs and Merrill Lynch cut their earnings forecasts for the information provider ahead of its interims next week.

Rumours that Amvescap is planning to raise cash via rights-issue sent shares in the fund management giant 14p lower to 316.75p. According to the speculation, Amvescap wants the money to cover expected US lawsuit costs. But Amvescap was not the only fund management group to lose ground. Schroders fell 8p to 555p, while Rathbone Brothers gave up 11.5p to 635.5p. Given the negative sentiment towards the sector, dealers were surprised to see HHG gain 2.5p rise to 50.5p. Some talked of a bid for the group or of a possible merger with Britannic, 4p better at 351p.

Whispers of a possible bid for Pace Micro pushed shares in the set-top-box maker 1p higher to 56.5. Scientific Atlanta, a US rival, has traditionally been seen as the most likely bidder for Pace. But more recently, Amstrad, which also makes set-top-boxes, has been linked with the group. Amstrad, run by Alan Sugar, has seen its share price nearly triple over the past 12 months and now has a market value bigger than that of Pace.

There was yet more director share-buying at Avesco, up 0.5p to 52p. Ian Martin, the chairman of the broadcasting services group, picked up a further 50,000 shares at 51.5p, taking his total holding to 350,000. Meanwhile, Richard Murray, a non-executive, acquired 150,000 at 50.5p, leaving him in control of more than 20 per cent of Avesco or 3.3 million shares.

Knowledge Technology Solutions dropped 0.75p to 512p as a 10 per cent stake belonging to its former director Paul McGroary was sold by brokers at 4.5p. The group, which provides financial information to investment banks in the City, is now valued at just £7m. It has a cash pile of £3m and trading is believed to be in line with expectations. Alizyme dropped 2.5p to 146.5p as investors awaited news on the group's drug development pipeline. But Alizyme was not the only biotech under pressure. Antisoma fell 0.26p to 15p, Vernalis gave up 8p to 81p and Phytopharm lost 8.5p to 162.5p.

Hansard Group was the best performing stock on the market. The City PR group soared 61 per cent, or 28.5p to 74.5p, as investors awaited details of a planned acquisition and fund raising. According to one very well informed corner of the Square Mile, Hansard plans to buy a rival PR company, which will make it the biggest agency representing small-cap companies. It also plans the purchase of a property portfolio.

All this will be financed via an £11m fund raising backed by Terry Ramsden, the millionaire investor and horse racing enthusiast. Following the equity issue, he will be Hansard's largest shareholders, alongside Adam Reynolds, its chief executive. Shares in the group have risenmore than 700 per cent in the past 12 months.

MARKET MOVERS

AB Foods 627p (up 19.5p, 3.2 per cent). Brokers applaud the group's purchase of the bakery ingredients and US herbs business from Australia's Burns, Philp & Co.

Stanley Leisure 426p (up 8.5p, 2.0 per cent). Altium Capital raises its earings forecasts on the group and sets a 450p price target on the stock.

DFS 443.5p (up 8p, 1.8 per cent). The company recommends a 445p a share cash offer from its chairman and founder Graham Kirkham.

European Diamonds 78.5p (up 13.5p, 20.7 per cent). Issues a very bullish drilling update from its deposite in northern Lesotho.

Virtue Broadcasting 3.87p (up 0.25p, 6.9 per cent). Reaches an agreement over the property lease of its former head office which will save it £805,000 over the next two and a half years.

Zytronic 63.5p (up 5p, 8.6 per cent). Investors respond to recent director share buying at the company.

MyTravel 7.10p (up 1.1p, 18.4 per cent). Modest short covering drives the stock higher. Dealers continue to report the presence of a massive short position in the shares.

Egg 148.75p (down 8.25p, 5.3 per cent). First half losses narrow to £2.1m but worries remain about whether a formal bid for the company will ever emerge.

Acambis 319p (down 16p, 4.6 per cent). Investors continue to fret about the challenge to the company from Scandinavian rival Bavarian Nordic.

LogicaCMG 166.25p (down 7.25p, 4.2 per cent). Says it will have to cut jobs at its German IT services business as the unit continues to disappoint.

Motion Media 4.25p (down 8.5p, 66.7 per cent). The stock resumes trading on AIM following its acquisition of Austrian group Scotty.

Johnson Group 247.5p (down 40p, 13.9 per cent). Warns that its full-year figures will be substantially below market expectations.

Autonomy Corp 179.5p (down 22p, 10.9 per cent). Interims from the software group disappoint the market.