Market Report: Talk of Capital-GWR merger boosts radio sector

Dealing rooms in the Square Mile were yesterday buzzing with talk that consolidation may soon be on the agenda in the radio sector. It seems the excitement was caused by a seminar held by Capital Radio in which media buyers surprised investors with largely positive comments about the prospect of industry consolidation. Media buyers were very hostile to the merger of Carlton and Granada last year.

Dealing rooms in the Square Mile were yesterday buzzing with talk that consolidation may soon be on the agenda in the radio sector. It seems the excitement was caused by a seminar held by Capital Radio in which media buyers surprised investors with largely positive comments about the prospect of industry consolidation. Media buyers were very hostile to the merger of Carlton and Granada last year.

Numis Securities, whose analysts attended the seminar, said a merger between Capital, up 7p to 497p, and GWR, 10p better at 262p, would be one of the best combinations in the sector. "We believe that a tie-up between Capital and GWR would create real value for shareholders and are please that such a deal would not suffer strong opposition from media buyers," the broker said.

Numis also argued that Johnny Vaughan looks to have rejuvenated Capital's 95.8FM, which had been responsible for the group's underperformance in recent years. The broker believes evidence to support this view should start to feed through in audience figures later this year. Elsewhere in the sector, Chrysalis gained 9.5p to 202p, Scottish Radio improved 12.5p to 900p and Wireless Group rose 2.5p to 90p.

Cable & Wireless fell 0.75p to 125.5p, Colt Telecom gave up 1.25p to 84p and BT Group retreated 4p to 192p as investors fretted about increasing competition among telecoms carriers. The worry was sparked by results from a resurgent Energis. The now privately owned company, which was on its knees in 2002, unveiled an impressive 21 per cent jump in earnings and boasted it had secured £300m of contracts so far this year. Analysts believe the phoenix-like recovery at Energis is bad news for its rivals in the telecoms sector.

Wolseley gained 9p to 841p after Citigroup Smith Barney argued that the building materials group is set to benefit greatly from the recent strength in US lumber prices. The US broker upped its earnings forecasts some 6.5 per cent to take account of this and told investors to buy Wolseley stock, up to 950p.

MFI dropped 3.75p to 158p as Merrill Lynch raised concerns about the retailer's ability to hit its earnings forecasts. Last month, the US broker cut its 2004 forecasts by £20m to £100m but it now fears that MFI will struggle to achieve even this target. Merrill was heard warning clients that the group's business is misfiring and suggested that same-store sales could be down as much as 13 per cent after a weak response to the company's Easter promotion. This negative talk from Merrill comes after cautions comments about MFI's performance from Credit Suisse First Boston last week. Meanwhile, bulls of the retailer remained convinced the company is a bid target.

Today's AGM statement from the shipping broker Braemar Sea Group, steady at 245p, is likely to impress the market, according to one well informed corner of the Square Mile. The group is believed to have won significant business for the transportation of liquified natural gas, which should give Braemar earnings a good boost. Investors were unsettled to see Michael Crompton, the founder and former chairman of Landround, sell down his holding in the AIM-listed travel promotions group, which closed 5p weaker at 252.5p on the news. Mr Crompton sold 32,000 shares at 250p. Earlier this month Landround was forced to issue a profits warning.

Hawtin jumped 1.5p to 12p as it emerged that Panther Securities has taken a 29.7 per cent stake in the group. Last week, Panther, a listed property investor, picked up shares belonging to Hawtin's former managing director and finance director and yesterday it finished off the raid by acquiring the chairman's stake.

All purchases were completed off market at 13p. Over the past two years Hawtin has been busy selling off its various manufacturing assets and now retains a portfolio of properties in South Wales.

Ukbetting rose 1.75p to 55p on talk that business is booming at the online gaming group. Word has it the company's broker will soon have to up its forecasts. Bullish talk also surrounded Northgate Information Solutions, 1p better at 60p. The group is due to post results in the near future and gossips reckon they will not disappoint.

Glanbia gained 5.5p to 165.5p as brokers tipped the dairy products group to beat City expectations with its next set of results. The company's rationalisation programme is said to have radically cut costs. Meanwhile, a buzz surrounded Charter, 9p better at 161.5p. More than 3 million shares changed hand and dealers reported rumours of stake-building in the company by an aggressive US institutional investor. And finally, punters can expect some positive news from Matrix Communications today, down 0.18p at 2.72p. The IT services group has won a deal to upgrade the London School of Hygiene's computer network.