Market Report: Jarvis rumours centre on £70m rights issue

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The Independent Online

If you believe yesterday's stock market gossip, the support services group Jarvis is looking to put together a rights issue and could well end up launching it within the next month. Word has it that the company, which provides services locally and nationally under the Government's private finance initiative, is hoping to raise around £70m, possibly via a one-for-one issue to existing shareholders at between 50p and 60p.

If you believe yesterday's stock market gossip, the support services group Jarvis is looking to put together a rights issue and could well end up launching it within the next month. Word has it that the company, which provides services locally and nationally under the Government's private finance initiative, is hoping to raise around £70m, possibly via a one-for-one issue to existing shareholders at between 50p and 60p.

City analysts were not surprised by the rumour. They noted that Jarvis is very much in need of a cash injection. "The group is known to be up against its banking covenants, having narrowly avoided breaching them not so long ago thanks to a disposal," said one analyst. Jarvis shares presently stand at levels not seen since 1996, following a series of profit warnings, and the company is looking at asset disposals, among them its stake in the consortium that runs the London Underground.

But given its stretched balance sheet, the group is viewed as a forced seller. A rights issue would certainly give Jarvis some breathing space and allowing it time to get a better price for the assets it wants to sell. In its most recent profit warning, last month, the group said it was reviewing its dividend policy. Most analysts now expect this year's pay-out to shareholders to be around half that last year. Jarvis shares finished 2p better at 86.5p.

Meanwhile, the FTSE 100 index rose 59 points to 4,454, making up over half of Monday's losses. Kingfisher missed out on the gains, falling 2p to 277.75p, as Deutsche Bank downgraded its earnings forecast and warned that further downgrades are likely in the wake of Kingfisher's first quarter numbers in June. "This is entirely the result of the poor spring weather in the UK and, to a lesser extent, in France," said the German broker.

Deutsche also played down the possibility of a bid for Kingfisher from Home Depot in the near term. In a recent meeting with Carol Tome, the chief financial office of the American DIY giant, the broker was told that Kingfisher's valuation is too rich at present. But investors should not discount a takeover of the company altogether, according to Deutsche, and should not get too worried about the effect of the poor spring weather. If Kingfisher's valuation were ever to drop back, it believes Home Depot would certainly be interested in buying the company. "Either Kingfisher will continue to deliver strong growth and maintain its current rating or it will falter and will be bid for," said Deutsche, repeating a "buy" rating on the stock.

Talk of an imminent bid for Abbey National pushed the mortgage bank's shares 21p higher to 465.75p. Dealers reckon a banking group from across the Atlantic has been stalking Abbey for some time and is about to pounce. Similar rumours that a move for condom maker SSL International is just around the corner. helped its shares gain 4p to 319p.

Enterprise Inns added 10p to 560p as UBS upgraded the pubs giant to "buy" from "neutral". Positive broker comment also got Bunzl rising 14p to 478p. Merrill Lynch applauded Monday's acquisition of Groupe Pierre Le Goff and raised its recommendation to "buy" from "neutral". "The purchase looks like a very sensible deal and we expect further such bolt-on acquisitions in the future from Bunzl," said the US broker.

Photo-Me International fell 0.75p to 111.5p despite a bullish trading statement from the photo-booth operator. The group boasted of robust demand and production levels of its Minilab and Kiosk products. Evolution Beeson Gregory believes market forecasts for profits at Photo-Me are beginning to look far too conservative and suggested that upgrades will be needed soon.

Lonmin, unchanged at 968p, was held back by Numis Securities, which warned that tomorrow's interim results from the mining group could well disappoint. The broker predicts that production at the group will have suffered as the company gets its new smelter into action, while open cast production rates are likely to have been hit by heavy rain.

Among small caps Wensum, a textiles group, put on 0.5p to 85p following the purchase of 40,000 shares at 83.75p by Stuart Lyons, the chairman. Elsewhere, Straight lost 2.5p to 120p in response to news that Jonathan Straight, the chief executive, sold 75,000 of his shares. Even after the disposal, he still controls over 69 per cent of the container specialist.

Brewin Dolphin fell 2.5p to 86.5p on fears that brokers like Brewin, who operate in the small cap arena, have experienced a slowdown in business over the past month. Kier Group fell 8p to 671p as dealers struggled with a hefty overhang of stock in the market.

3DM Worldwide gained 12p to 110p as buyers returned to the stock after a bear raid. Results from the group, which is developing type of plastic mould said to be as strong as steel, are expected soon.

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