Market Report: Dealers urged to take Northern Foods off the menu
Saturday 03 June 2006
The light at the end of the tunnel does not seem to be getting any brighter for Northern Foods, the food maker which has warned on profits three times since January. Deutsche Bank became the latest broker to recommend selling the shares, despite Thursday's announcement that the company plans to sell £200m of assets to stop the rot.
Deutsche Bank believes Northern shares are worth only 80p, based on the belief that the company may not make the £200m it expects from the sales of Smiths flour milling, non-core distribution and its chilled pastry divisions, "a very ambitious target", according to the analyst Sara Supino.
The broker also said management guidance indicates the first half of 2007 will be significantly worse than in 2006. Shares in Northern Foods fell 4p to 89.25p, just above the 10-year low of 86.5p they traded at in February 2000.
GlaxoSmithKline fell 13p to close at 1,483p, as traders expressed concern over reports the company is poised to offer $15bn (£8bn) in cash for Pfizer's over-the-counter pharmaceuticals business, at the top end of analysts' valuations. Initial reports valued the business, which includes the Calgon and Listerine brands, at $13bn.
Traders said GSK is "almost certainly" the front-runner to buy the Pfizer brands, and the alleged value of the bid gave a boost to shares in Boots and Alliance UniChem, soon to merge and become the largest UK retail chemist. Boots climbed 20.5p to 726.5p while Alliance added 20p to 951p.
It was a sluggish end to the week for the FTSE 100, with trading lacking any real direction. The index finished in positive territory, 14.9 better at 5764.6, mainly on the back of a solidfinancial sector.
ABN Amro, fresh from a get-together with Lloyds TSB on Wednesday evening, reiterated its "overweight" stance on UK banks, with HBOS its top pick. The Dutch broker increased its target price on the UK's largest mortgage bank to 1,300p, sending its shares 18.5p firmer to 934.5p. Lloyds continued to attract buyers, closing 3p better at 518.5p.
In the mid market, rumours that a bidder will emerge for the soft drinks group Britvic refused to die down, although traders now believe that PepsiCo, the US drinks giant, is the likely bidder, rather than the French private-equity group PAI. Shares in Britvic remained well bid, closing 8p better at 211.25p. The group has warned on profits twice since listing in December, and major shareholders are thought to be open to offers after a disastrous start as a public company.
The video game group SCi Entertainment was up 37.25p to 552p. Its new "Hitman" game is the biggest seller in the UK, and traders said the success of the game could tempt another bidder to come out of the woodwork. The group has also signed a number of licensing deals to develop "Hitman" and "Tomb Raider; Legend" for use in slot machines at casinos.
News that the retirement-home builder McCarthy & Stone has received more than one bid approach sent the house-building sector into overdrive, before some profit-taking and rumours that the McCarthy family is behind one of the bids knocked the gloss off. Its shares topped the FTSE 250 leader board, closing 120p better at 907.5p. The bidding is expected to open at 900p, with the potential to go significantly higher.
Persimmon, the only sector representative in the FTSE 100, added 10p to close at 1,236p, while Barratt Developments closed 12.5p better at 938.5p. George Wimpey is also in the frame, as its shares climbed 6p to 467p.
Small-cap bears had a field day, with a raft of profits warnings and grim trading news. First up was WIN, the wireless data services group, as it warned that pre-tax profits for the first five months of 2006 would be "substantially lower" than in the corresponding period of 2005. Its shares fell 85p to 185p. The marketing services provider Eq Group blamed a cut in client-project activity for a full-year profits alert, although it added that the trend is improving. Even so, investors deserted the stock in their droves, sending the price 32.5p lower to 72.5p.
Finally, short sellers of Chariot, the alternative lottery company, look set to cash in after the company warned on sales and announced an emergency fund raising. Its shares have been on the slide since draws for its "Monday" lottery began, and the stock must rank as one of the worst performing public offerings in the history of equity markets.
From a peak of 213.5p in April, its shares closed at 8p yesterday, down 62.8 per cent on the day and 96.6 per cent off the high. The stock listed in February at 120p, and is in danger of going the same way as another Monday, the short-lived rebranding of PriceWaterhouseCoopers Consulting.
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