Market Report: Broker verdict buoys N Brown amid sea of red

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Amid a sea of red, N Brown, the catalogue retailer, stood out on traders' screens. Its shares leapt4 per cent, or 4.5p to 110.5p, after Citigroup Smith Barney turned bullish on the stock and set a 130p price target. So why the sudden enthusiasm for N Brown? Well, the broker believes there is hidden value at the group and that it could be unlocked by a capital restructuring.

Amid a sea of red, N Brown, the catalogue retailer, stood out on traders' screens. Its shares leapt4 per cent, or 4.5p to 110.5p, after Citigroup Smith Barney turned bullish on the stock and set a 130p price target. So why the sudden enthusiasm for N Brown? Well, the broker believes there is hidden value at the group and that it could be unlocked by a capital restructuring.

N Brown does indeed seem cheap using the normal valuation methods. It trades at just 9.7 times this year's earnings. And Citigroup believes they are especially cheap when one looks at the value behind the group's debtor book. This consists of all the money that is owed the company by customers who have used its various buy now pay later schemes. The value behind this can be unlocked via a securitisation, Citigroup says, and would see N Brown receive a lump sum of cash which could then be returned to long-suffering shareholders.

Alternatively, the US broker points out that the securitisation could be used as a way to finance a bid for the company. But such a move would need the backing of Sir David Alliance, N Brown's chairman and its biggest shareholder, with a 32 per cent stake.

Meanwhile, the FTSE 100 dropped 21.6 points to 4,408.1. Barclays was the talk of the City as investors piled into the banking giant. It closed 9.25p better at 470p as rumours of a bid for the group from America's Citigroup circled dealing rooms. An alternative story suggested that today's interim results from Barclays will easily top expectations. As it stands, analysts expect pre-tax profits of £2.3bn from the bank. Elsewhere in the sector, Royal Bank of Scotland rose 23p to 1,533p, Standard Chartered put on 11.5p to 924p and Alliance & Leicester ticked 2p better to 847p.

Egg continued to crack, falling 4.75p to 99.25p, as institutional investors dumped the stock. Cazenove is believed to have placed 45 million shares at 94p on behalf of various clients. On Tuesday, Egg shares crashed after it emerged that Prudential had failed to find a buyer for its 79 per cent stake in the internet bank.

BT Group gave up 8p to 181p as Lehman Brothers cut its price target on the telecom carrier to 215p from 230p. It warned investors that BT faces an increasingly challenging environment in the UK, amid competition from the likes of Carphone Warehouse's TalkTalk. Carphone itself fell 3.75p to 134.25p on news that Geoffroy Roux de Bezieux, the group's chief operating officer, had sold 2 million shares at 135p. He retains a holding of 9.9 million shares and has promised not to sell more than 1.5 million shares over the next two years.

Sage was hit by cautions comments from Merrill Lynch. The stock dropped 5.75p to 163.75p as the broker argued that recent news flow from the software sector highlights that the recovery in the industry, particularly in the US, is coming through slower than had been anticipated. Sage is dependent on America and as a result Merrill has reduced its 2005 earnings estimates for the group by 5 per cent.

MFI fell 2p to 130p as investors concluded the recent director share-buying at the retailer rules out the possibility of a management buyout in the near term. At the start of the week it emerged that Shaun O'Callaghan, MFI's strategy and development director, had spent £99,000 on stock.

Eidos retreated 1p to 107p despite reports in the French press that the local games publisher Ubisoft is planning a bid for the company. Evolution Beeson Gregory said: "It is worth noting that in the past French newspapers have usually been correct about these things." It believes that a link-up between Eidos and Ubisoft makes strategic sense and suggested that the Ubisoft may have to pay up to 135p a share to secure its UK rival.

However, there was a word of caution from Evolution. It warns investors not to exclude the possibility of Eidos acting as a consolidator, which, it fears, is likely to be taken badly by the stock market, at least initially. The broker also fears there is also a possibility that no deal is done, given some of the egos in the computer games industry.

Vislink fell 0.75p to 22.5p on fears that the company is being negatively impacted by the strength of the pound. T Clark was steady at 491p despite talk that the group's results, due this month, could disappoint some in the Square Mile. Hunting ticked 2p higher to 132p as gossips suggested that business is booming at the company's Gibson Energy division.

Vanco added 1p to 232.5p after boasting that it has signed new contracts across Europe worth £10.5m. Despite the impressive share-price performance at the online retailer Asos, its directors continued to add to their holdings. John Morgan, the finance director, picked up 17,000 shares at 57.5p. Asos stock, which dropped 2p to 55.5p, has risen tenfold over the past 12 months.

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