Market Report: Steel giant Corus slumps on broker warning

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The Independent Online

Now is the time for investors to lock in any profits they may have made from the bull market in steel over the past few years. This was the conclusion of research by UBS into the global steel sector and it certainly did no favours for Corus's share price yesterday, which dropped 1.25p to 53.75p.

Now is the time for investors to lock in any profits they may have made from the bull market in steel over the past few years. This was the conclusion of research by UBS into the global steel sector and it certainly did no favours for Corus's share price yesterday, which dropped 1.25p to 53.75p.

The good times for the industry are drawing to a close, according to the Swiss broker. It believes that October's news that China has become a net steel exporter signals this and UBS predicts that steel inventories could start to grow quickly next year, putting pressure on prices. Such a scenario, should it come to pass, will squeeze profit margins at the likes of Corus. UBS fears that by 2006 steel prices will be on a downward trend and forecasts a 26 per cent fall in that year.

Corus shares have enjoyed an incredible renaissance on the back of the booming metals prices. This boom has been driven by demand from China, the world's largest steel consumer. In just 18 months, Corus has soared from 4p to about 56p last month. Thanks to this performance, the steel maker was readmitted to the FTSE 100 last September.

Although London Stock Exchange closed 0.5p weaker at 414.25p, rumours of a link-up with Deutsche Börse returned in a big way. Traders reported speculation that a deal could be imminent, maybe even before the end of the week.

According to the gossip, the tie-up will be structured in the form of an all-paper merger, which is likely to value LSE shares at about480p. The speculation is nothing new but has intensified in the wake of last month's results from the exchange, causing its shares to soar.

The bourses attempted to merge in 2000 but the tie-up foundered amid opposition from UK brokers. Since then both have become public companies, giving them more independence to pursue deals. More recently, Werner Seifert, the chief executive of Deutsche Börse, was reported to be on a charm offensive of City brokers and investment banks.

Elsewhere, Enodis, the maker of cooking equipment for fast food outlets, roared 9.75p higher to 111p as severalhedge funds were said to be convinced that a takeover offer for the company is on the way. Should that be the case, it will certainly be without the knowledge of the Enodis board of directors as on Monday the company disclosed the purchase of 30,000 shares by Peter Brooks, its chairman.

Luminar rose to a new high of 563p, up 13p, as Bridgewell Securities suggested the bars operator has the potential to double its dividend over the next year thanks to its impressive cash generative qualities. The broker also noted that if one were to ascribe the same valuation to Luminar as that ascribed to Burtonwood by Wolves & Dudley's takeover offer then Luminar shares should more than double from current levels.

Legal & General fell 2.25p to 107.75p as several brokerages suggested the life insurer may have to cut its dividend to fund its future growth.

Credit Suisse First Boston told investors: "If the UK life market is freeing up as much as L&G believes, then we reckon that management is prepared to cut the dividend to push for market share gains." Alternatively, the broker suggests that L&G could opt for a rights issue as a way to raise new capital for growth.

CSFB was not the only broker to talk of a possible rights issue at L&G. Sanford Bernstein, which cut its rating on the insurer to "market perform" from "outperform", also argued that L&G needs an injection of fresh cash.

Elsewhere in the sector, Friends Provident lost 3.25p to 155p as Merrill Lynch sold 48.5 million shares at 155p on behalf of the owners of Lombard International. When Friends acquired Lombard, it partially paid for the deal by using its own shares as currency.

The FTSE 100 index closed 5.9 points better at 4,728.7. The sugar manufacturer Tate & Lyle, down 3p at 482.75p, was tipped by brokers to replace the engineer Tomkins, up 0.75p to 249p, in today's reshuffle of the blue-chip index. The change will take effect from the close of trading on 17 December.

Lower down the pecking order, Alphameric rose 1.5p to 74.5p after Alan Morcombe, its chief executive, bought 40,000 shares at 73p.

There was also director share-buying at Carclo, 4p lower at 44p. Robert Brooksbank, the finance director at the engineering group, purchased 34,000 shares at 44p.

Finally, Landround, the promotions specialist, rose 5p to 292.5p after solid full-year figures. Evolution Securities, the company's broker, raised its earnings forecasts in the wake of the results.

Market Movers

↑ BT Group 206p (up 4.75p, 2.4 per cent). Ongoing share buy-back supports the stock.

↑ GlaxoSmithKline 1,159p (up 19p, 1.7 per cent). Says it plans to supply 4 million doses of Fluarix, its flu vaccine, to the US government.

↑ Wolseley 890p (up 13p, 1.5 per cent). Credit Suisse First Boston reiterates its "outperform" rating and 980p price target on the building materials group.

↑ PHS Group 77.75p (up 5.25p, 7.2 per cent). Unveils plans for a £40m share buy-back programme and a 12 per cent rise in first-half profits.

↑ Grainger Trust 1,818p (up 64p, 3.7 per cent). Merrill Lynch reiterates its "buy" rating after strong results from the property group.

↑ Mersey Docks 934p (up 29p, 3.2 per cent). Investors await takeover developments.

↑ Northumbrian Water 161p (up 4p, 2.6 per cent). Announces a 57 per cent rise in underlying profits and issues a bullish outlook statement.

↑ Centurion Electronics 105.5p (up 26p, 32.7 per cent). Reports a 97 per cent surge in full-year pre-tax profits to £2.3m as sales rise across the company.

↑ Envesta Telecom 2.2p (up 0.3p, 17.7 per cent). Says it is on track to achieve a full-year pre-tax profit of £750,000.

↓ Aviva 608.5p (down 5.5p, 0.9 per cent). Investor woe as Deutsche Bank downgrades its recommendation on the insurance giant to "hold" from "buy".

↓ Capita 352p (down 3.75p, 1.1 per cent). Says its full-year results will meet analysts' expectations.

↓ Alba 652.5p (down 22.5p, 3.3 per cent). Complains about uncertain trading conditions.

↓ Lavendon 117.5p (down 29p, 19.8 per cent). Warns it will be unable to pay a final dividend after suffering one-off costs associated with the restructuring of its German business.

↓ Ultraframe 70p (down 13.75p, 16.5 per cent). Broker downgrade after poor annual results.

↓ Character Group 72.5p (down 8p, 9.9 per cent). Full-year profits slump to £3.2m from £5.6m, prompting a dividend cut at the company.