Market Report: MFI Furniture boosted by buyout speculation

Talk of a management buyout at MFI Furniture returned yesterday and certainly got shares in the retailer moving. They finished 7.75p better at 156p as nearly 28 million shares changed hands. On a normal day little more than 10 million are traded. Market professionals, however, were divided about the price of a possible bid. Some argued it should come in at 180p; others suggested that a value closer to 200p is more likely.

Talk of a management buyout at MFI Furniture returned yesterday and certainly got shares in the retailer moving. They finished 7.75p better at 156p as nearly 28 million shares changed hands. On a normal day little more than 10 million are traded. Market professionals, however, were divided about the price of a possible bid. Some argued it should come in at 180p; others suggested that a value closer to 200p is more likely.

An alternative theory offered by traders hinted that MFI may be considering the demerger or sale of its Howden building materials arm. The fast-growing division is considered by many in the City to be the crown jewel of MFI. But such a scenario will be far less exciting for shareholders than an outright bid for the whole retailer. So it was no surprise to see MFI shares closed well below their intra-day high of 161p.

Should some form of corporate action fail to materialise at Britain's biggest furniture retailer, analysts believe MFI shares will quickly find themselves back at the 140p seen in the wake of the group's disappointing May trading statement. Back then, the company reported a sharp deterioration in sales at its core UK business due to stiff competition from the likes of Argos and B&Q.

Meanwhile, the FTSE 100 finished virtually unchanged, rising just 0.1 point to 4,422.8. BSkyB dropped 4.5p to 595p as a US institutional investor sold a block of 7.1 million shares, a holding of about 0.5 per cent in the satellite broadcaster, at 592p. Exel gave up 5.5p to 702.5p after Merrill Lynch cut its profits forecasts for the UK logistics group after a meeting with its management. The broker blamed the weakness of the dollar and the rising freight rates the company faces in Asia.

Big Food Group put on 1.5p to 101p as the value food retailer announced that it had withdrawn from the bidding for Londis. Following the news, BFG unveiled a series of share purchases by its directors. Bill Grimsey, the company's chief executive, led the way with the acquisition of 25,000 a shares at 101p. Andrew Clarke, a fellow executive, bought a more modest 10,000 at the same price.

Lower down the pecking order, MyTravel was hit by a renewed bout of short selling by traders, falling 0.75p to 9.25p. Bears of the travel operator believe that a debt-for-equity swap is inevitable and could leave shareholders with as little as 4p a share. MyTravel's balance sheet certainly looks to be in a bad way and in need of restructuring. The company has a market value of £50m and debt of nearly £900m. Although last week MyTravel said it hoped to return to profitability in 2005 it warned investors that a restructuring of its balance sheet could "result in a very significant dilution of the interest of shareholders".

Royalblue jumped 17.5p to 532.5p as the software group won the first phase of a legal dispute with US company Lava Trading in a New York court. Severfield-Rowan gained 3.5p to 353.5p as investors moved into the stock ahead of the engineer's upcoming annual meeting. Word has it Severfield is enjoying strong trading and is on course to top analysts' profits forecasts.

3DM Worldwide dropped a further 8.5p to 98.5p as investors continued to de-rate the stock. Dealers were shocked to see one large sell-order of 200,000 shares cross the market at just 81p. Shares in the plastics developer have nearly halved since their peak in November. Elsewhere, brokers drew investors' attention to an apparent contradiction in the market's valuation of Greenwich Resources, steady at 2.12p, and Desire Petroleum, unchanged at 17.25p. Greenwich holds a 42 per cent stake in Desire, which at Desire's closing share price of 17.25p is worth £11.8m. However, at Greenwich's current share price, the whole company is valued at just £7.8m. This not only fails to take account of the full value of the group's stake in Desire but also values the group's Sappes Gold Mining Project in Greece at zero.

Desire is at present carrying out seismic studies of its site in the Falkland Isles in the hope of uncovering a large oil find. The last time the company updated the market it said this process was "proceeding well". Back in December it raised £7m to fund the project.

Finally, shareholders in Sibir Energy were yesterday getting used to news that the stock will remain suspended at least until mid-July, when an extraordinary meeting will see management ask investors for approval of its proposals for dealing with the dilution of Sibir's holding in the Sibneft-Yugra joint venture.

The group's main Western institutional investors are believed to be supportive of the management's programme for dealing with the setback at the joint venture, which is a partnership between Sibir and Roman Abramovich's Sibneft. These shareholders control more than 10 per cent of the AIM-listed oil group.