Market Report: Whitbread falls as break-up talk is dismissed

Whitbread missed out on another day of strong gains by the wider market as Dresdner Kleinwort Wasserstein bluntly urged investors to abandon the leisure conglomerate. As the blue-chip index jumped 37.2 to 5,460.8, Whitbread dropped 6.5p to 946p on the back of the German broker's "sell" rating.

The big hope for many investors holding the stock is that the company will soon be broken up. However, Dresdner expressed extreme scepticism that such a scenario will come to pass any time soon. "Whitbread's share price is still factoring in a break-up of the company. We believe investors have overlooked the degree of integration of the company and underestimate the costs of splitting up the group", the broker warned.

It pointed out that Whitbread, which is one of Europe's biggest restaurant groups, enjoys substantial cost savings by acquiring food in large quantities for all of its businesses. These saving would be wiped out by a break-up, which would also be very complicated because the operational management of Whitbread's Premier Travel Inn and its various pub and restaurant businesses are unified at 260 sites (which is 57 per cent of the hotel division).

The leisure conglomerate, which owns Costa Coffee and David Lloyd Leisure, is also up against tough trading conditions across all of its divisions. In fact Whitbread has been one of the few leisure companies to have consistently flagged the weakness of the UK consumer during 2005. Dresdner said it does not expect these conditions to improve any time soon.

The German broker also did Compass Group no favours. Shares in the catering giant dropped 1.75p to 199.25p after Dresdner downgraded its stance on the stock to "hold" from "buy". It told investors things are unlikely to improve any time soon at the troubled company.

Despite the strong performance by the FTSE 100, Roger Cursley, a strategist at Investec Securities, was cautious about the prospects for blue chips. Although investors are being returned huge amounts of cash through takeovers, Mr Cursley said he was not convinced that the amounts of money will be enough to push equities significantly higher in the run-up to the new year.

Elsewhere, ICI fell 1.25p to 306.25p after Deutsche Bank sold 29.7 million shares at 305p on behalf of an institutional investor. P&O rose 13.25p to a five-year high of 447.25p on rumours of counter-bid for the ports operator. As it stands, Dubai Ports World is known to have approached P&O about a takeover - but there is a growing expectation in the City that a higher offer is a distinct possibility, probably from the likes of Singapore's Temasek Holdings or Moeller-Maersk of Denmark.

Bradford & Bingley lost 6.5p to 352.5p after Deutsche Bank downgraded the mortgage bank to "sell" from "hold" and slapped a 305p price target on the stock. Deutsche said: "We believe B&B's earnings progress will depend on revenue growth, which we forecast will be hindered by continued margin compression." Brixton, off 4p to 402.5p, saw Tim Wheeler, its chief executive, buy 70,000 shares at 399p. Steve Owen, another executive at the property group, picked up 48,000 at the same price.

There was also director share buying among the small-caps. Walker Greenbank rose 1.25p to 16p after Ian Kirkham, the chairman of the wallpaper maker, acquired 180,000 shares at 15.5p. John Sach, the chief executive, bought 20,000 shares, while the company's finance director Alan Dix picked up 10,000 at the same price.

Neteller dropped 56p to 652.5p after its founder shareholders sold 35 million shares at 625p. The lock-in governing the stock had expired on 4 November and the founder investors took the opportunity to cash in some of their chips. Analysts were not surprised by the move. Neteller shares have more than doubled during the past 12 months.

Mothercare gained 31p to 370p amid speculation that Apax Partners is about to table a bid for the company and had offered its largest shareholder, Fidelity, 400p a share for its 14 per cent stake. However, sector analysts were unconvinced by the story and pointed out that private-equity houses such as Apax are not in the habit of building stakes in public companies before buying them.

United Clearing, steady at 131p, reported record annual results which boasted a 350 per cent rise in pre-tax profits to £1.2m. James Fisher gained 9.75p to 379.75p on talk of strong trading at the marine services group.

Finally, Xaar put on 4p to 278p after the inkjet technologies company held a series of bullish meetings with institutional investors.