Market Report: Hard times for iSoft as it crashes to all-time low

The software company iSoft Group had another bad session in the City yesterday. Shares in the group, whose software is used by doctors' offices and hospitals, crashed to a fresh all-time low of 91.25p, down 8.25p, on rumours it is about to breach its banking covenants.

A spokesperson for the troubled company denied the talk. He said: "Based on our expected numbers for the year ending 30 April 2006, iSoft will not breach it banking covenants." Speculation that iSoft is deep in financial trouble is nothing new. At the start of last month, the company was forced to put out a statement in which it described rumours that it was about to suffer a meltdown as "unfounded". It then went on to reiterate its earnings forecasts for 2006.

Later that month (on 28 April), iSoft issued a massive profits warning. It alerted investors that both its sales and profits would miss expectations and blamed delays in completing a key National Health Service contract. Nevertheless, the group assured the City that it would remain profitable in 2006 and also cash generative. Isoft predicted it would post a profit of between £17m and £22m at its annual results due at the end of June. But, judging by the performance of its shares yesterday, investors are far from convinced by the company's assurances.

Meanwhile, the wider FTSE 250 rose 3 points to 1,0135. The FTSE 100 finished 38 points better at 6,105. Vodafone, 4p stronger at 130p, featured as the best performer in the blue-chip index amid rumours it has been offered $38bn (£20bn) for its stake in Verizon Wireless. The US fixed-line giant Verizon is said to have made the bid to Vodafone.

Commenting on the talk, Dresdner Kleinwort Wasserstein said: "We see increased speculation that the two companies could be moving closer to a deal as positive for Vodafone's near-term stock price momentum." The German-owned broker sees Vodafone shares as fundamentally undervalued at current levels and believes a disposal will prompt their re-rating.

DSG International jumped 5.75p to 194.25p on hopes today's trading statement from the electrical goods retailer will boast that it is benefiting from record demand for LCD-screen TVs. Analysts believe the TV boom could last for three years. This would be great news for DSG as TV sales account for 12 per cent of the retailer's turnover. Morgan Stanley was reported by dealers to have placed 40 million Royal & SunAlliance shares at 141p. RSA closed unchanged at 142p.

Cadbury Schweppes added 5p to 550.5p on fresh talk that the confectionery giant is being stalked by its US peer Kraft. Suggestions that Cadbury is about to launch a major new chewing gum brand in the US also boosted the stock. The company is said to be targeting a 21 June launch for the brand and be willing to spend $50m on marketing it. It is to be called Stride and have a tagline "The Ridiculously Long Lasting Gum".

Credit Suisse tipped BAE Systems as ripe for a re-rating. These comments sent shares in the defence group 10.25p higher to 332.25p. First, the Swiss broker pointed out that BAE has underperformed its US peers by 15 per cent over the past three months despite positive newsflow. Second, it predicted that Saudi contract work would soon start making a significant contribution to the company's earnings.

CSR, the wireless technology specialist, dropped 15p to 1,475p after two significant director share sales. John Whybrow, CSR's chairman, sold 80,000 shares at 1,492p; James Collier, the company's technical director, offloaded 500,000 at the same price. One can't blame the duo for cashing in some of their chips - CSR shares have doubled in the past six months.

Lower down the pecking order, Vernalis dropped 3.25p to 77.75p as Cazenove downgraded its rating on the biotechnology group to "underperform" from "inline". Although Vernalis reported positive results for its menstrual migraine treatment Frova on Monday, the broker said it was concerned about the ability of this data to drive market share gains in the near term.

First, it believes that Vernalis' US partner will be prevented from using the data to market the treatment to physicians before the start of next year. Second, Cazenove said Frova faces a significant competitive threat from the imminent launch of a rival drug by GlaxoSmithKline.

Finally, Lonrho Africa added 1.25p to 37p after appointing Gerard Holden, formerly head of mining at Barclays Capital, as joint executive chairman. Lonrho Africa, which was once part of Tiny Rowland's business empire, is again being built up as a pan-African conglomerate. In fact, it only finished selling the assets the late Mr Rowland had built up less than a year ago. Gossips reckon it will not be long before the group unveils a major acquisition in Africa.