Market Report: Leighton rumours give Morrisons welcome lift

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The Independent Online

Gossips honed in on Wm Morrison yesterday and in early trading they managed to drive shares in the group up to the 211.25p level by spreading rumours that the retail specialist Allan Leighton will either lead a bid for the company or be parachuted in as its new chief executive.

Gossips honed in on Wm Morrison yesterday and in early trading they managed to drive shares in the group up to the 211.25p level by spreading rumours that the retail specialist Allan Leighton will either lead a bid for the company or be parachuted in as its new chief executive.

The boost Morrisons shares enjoyed was certainly welcome. Over the past 12 months they have lost nearly 20 per cent of their value after two profit warnings and have lagged significantly behind rivals. But the reprieve was only temporary. By the end of the session, investors' ardour had waned, leaving Morrisons up just 0.25p on the day to 205p.

In the past, Mr Leighton has been linked with a bid for Sainsbury's. If you believe yesterday's rumours he has, in recent weeks, been in talks with Brandes, now a 9.3 per cent shareholder in Morrisons, with the aim of getting the US fund manager's backing for a buyout. More importantly, he will also need the support of Sir Ken Morrison, the company's 72-year old chairman, whose family control 18 per cent of the group.

However, analysts believe the theory that Mr Leighton may become the company's chief executive is more likely, if only marginally so. We already know the supermarket group is looking for a new chief executive to replace Bob Stott in the next couple of years for there is definitely a position up for grabs. But if a high-profile name such as Mr Leighton is to take the post he is certain to insist that Sir Ken takes a more hands-off role at the company.

Elsewhere in the sector, traders were betting that Somerfield would get a formal bid from the Baugur consortium, which includes the property tycoon Robert Tchenguiz and the buyout firm Apax, before the end of the week. They reckon it will value the company at up to 215p a share and halfway through the session it seemed as if everyone in the City was convinced of the story as shares in the convenience store operator raced up to 206p. But in the run-up to the close punters locked in profits and Somerfield finished down 0.25p at 196.5p.

Rumours also circled the Square Mile that a sizeable hedge fund had gone bust. It is said to have had substantial bull positions in Woolworths, before Apax withdrew its bid and the stock collapsed, and in First Calgary, which has been hit by worries that the company is not as sought-after by oil majors after all. As its stakes were liquidated both stocks came under selling pressure. Woolworths lost 0.75p to 38.75p and First Calgary gave up 22.5p to 597.5p.

The FTSE 100 had a bad day falling 33.6 points to 4,822.0. Nevertheless, Rio Tinto performed well, gaining 9p to 1,657p. The mining giant said that key commodity prices in the first quarter to March were significantly higher than a year ago. Antofagasta ticked 1p higher to 1,182p after UBS upgraded the copper miner to "buy" from "neutral". The Swiss broker expects the company to expand its Los Pelambres mine before the end of the year and seems convinced that upgrades to consensus forecasts for Antofagasta are very much on the cards in 2005.

Meanwhile, Egg dropped 1.25p to 102.75p as Credit Suisse First Boston argued that exactly the opposite is on the way at the internet bank. "We believe Egg's first-quarter results will lead to downgrades in City forecasts of about 15 per cent", declared CSFB, which slashed its price target for Egg all the way to 80p.

The last two pieces of research from the broker have warned investors of increasing pressure on profits at the group due to lower volumes and growing levels of bad debt. It expects these issues to become evident at Egg's results next week. CSFB forecasts the numbers to reveal a substantial fall in profits, probably to about £10m for the first quarter of 2005, compared with £20m for the final quarter of last year.

Lower down the pecking order, NETeller jumped 19p higher to 558.5p as Evolution Securities slapped an "add" rating on the e-money group. The broker believes the stock is worth at least 725p a share and tips the company to benefit from the transfer of its operations to the Isle of Man. This move should reduce its tax rate from 33 per cent to 10 per cent. Evolution told its clients that trading at NETeller is strong and suggested that upgrades to profit forecasts are likely in the coming months.

Finally, investors were eagerly awaiting today's float of Trading Emissions. The company has raised £135m via a fund raising led by Numis Securities and will use the cash to invest in the fast-growing emissions trading market. If completed successfully, it will be AIM's biggest float so far this year.

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