No answers, but plenty of theories to explain FKI nosedive

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The Independent Online

Something of a mystery surrounded yesterday's sudden drop in the share price of the engineer FKI. The group, which makes airport handling equipment, saw its stock price drop 5 per cent, or 4.25p, to 78p, with market professionals offering a plethora of reasons to explain the fall.

The most popular was that bid speculation, which had surrounded the stock for some weeks, had finally started to fade. It is certainly true that during the past month some traders had piled into the shares in the hope that FKI could be on the receiving end of a takeover approach. Gossips had hinted of a leveraged buyout by a private equity firm, which would have given the group's long-suffering shareholders a good exit. However, such a scenario was never really on the cards, according to sector analysts, who yesterday noted that the engineer already has far too much debt on its balance sheet, which leaves little room for leverage buyout.

An alternative explanation offered by dealers, yesterday, said a big institutional buy order had finally been filled and that in the absence of the buying support the stock had dropped. Others simply drew attention to the fall registered by the rest of the engineering sector ahead of today's interest rate decision from the US Federal Reserve. Cookson fell 2p to 24.5p, Bodycote lost 5p to 115p, Morgan Crucible gave up 1.5p to 75p and Halma fell 1.5p to 138.5p. "The industry is highly dependent on the performance of the wider economy and should the Fed cut rates by 50 basis points it would signal that the US economic recovery is stalling. Such a scenario would be dire to the engineering sector," argued one analyst.

Tomkins lost 3.25p to 225.25p amid worries that the group would be hit hard by the weakness of the US dollar. For the financial quarter ending 2 July, the adverse impact on Tomkins profits is likely to be about pounds 8.5m, according to Arbuthnot Securities, which warned clients that the stock's premium relative to its rival GKN, down 1.5p to 225.75p, is looking increasingly vulnerable. The broker advised clients to switch out of Tomkins and into GKN.

The FTSE 100 ended the day lower in nervous trade ahead of the US rate decision. The blue-chip index closed 27 points weaker at 4,060.9 while the second-line FTSE 250 gave up 71.6 points to 4,932.6. Unilever fell 15p to 481p as several heavyweight brokers downgraded their ratings on the Anglo-Dutch consumer goods in the wake of Monday's dire trading statement. Dixons fell 0.75p to 111.75p ahead of today's full-year figures. Investors can expect the electrical good retailer to post pre-tax profits of about pounds 295m, down from the pounds 298m achieved by the group a year earlier.

First Technology, off 4p at 243.5p, is set to post full-year figures today and word has it they will not disappoint. Although the company is facing weak markets, this should be more than offset by the migration of the group's production facilities from the UK to the Dominican Republic. Talk of corporate action in the near future also surrounded First Technology with gossips suggesting that the company is considering several bolt- on acquisitions. Meanwhile, Carillion, off 0.5p to 164.5p, announced that it has become preferred bidder for a rail track renewals contract worth pounds 450m. The contract will be spread over a 10-year period.

Collins Stewart completed two hefty placings in the housebuilding sector. The broker placed seven million shares of Barratt Developments, down 19.25p at 427p, and 10 million in Taylor Woodrow, off 9.5p at 198.5p, according to dealers.

JJB Sports ticked 0.5p higher to 216p on whispers that David Whelan, the chairman, will soon unveil the details of his bid to take the group private. According to yesterday's gossip he is willing to pay up to 240p a share for stock he does not already control.

Directors continued to sell down their holdings in the head hunter Whitehead Mann, down 2p to 176.5p. Yesterday it emerged that its executive director Durant Hunter had sold 400,000 shares at 180p each, which halves his total holding in the company to 1.3 per cent. The disposal comes hot on the heels of the sale of 1.2 million shares at the same price by Clive Mann, a former chief executive and currently a non-executive director. Elsewhere, OMG dropped 0.25p to 13p as Malcolm Lewin, the finance director, sold 30,000 shares at 13p each.

It was not all one-way traffic in terms of director share dealings yesterday. LA Fitness added 1.5p to 82.5p following the purchase of 60,000 shares at 82p each by the finance director Richard Taylor, while Urbium ticked 0.08p higher to 6.7p as David Cameron, a non-executive, picked up 100,000 shares. Cordiant held steady at 2.75p despite ongoing stake building by Active Value. The fund manager now controls 24.5 per cent of Cordiant and is looking to build a 25 per cent stake in the troubled advertising agency, which will allow it to block WPP's takeover bid.