Bottom Line: Note of realism in scramble for Low

OVER the past week, Tesco's shares have risen by 8.9 per cent and J Sainsbury's by 4.3 per cent as the City relished the prospect of a duel for William Low's hand. Even Asda and Argyll rose 2.7 per cent and 1.3 per cent, even though, as the two largest players in Scotland, more competitive Low stores must be bad news.

The excitement is starting to look a bit overdone. Low has just 57 stores, all but a handful of which will remain open, trading even more aggressively than before. It may mean slightly fewer stores in Scotland but, in the context of 100 openings a year, that is hardly significant.

Economies of scale mean that both Tesco and Sainsbury have scope to boost Low's margins - 4.95 per cent and falling - but Low will represent less than 6 per cent of their sales, so the net effect will be minimal.

The bid does suggest that the supermarket giants are becoming more realistic about the number of new stores the market can stand - and if Kwik Save does pick up some of the smaller Low stores, that will be even better news. But price pressure is unlikely to ease, so margins are more likely to fall than rise.

At 256p, Low's share price represents more than 17 times forecasts of this year's earnings - and it may be no coincidence that it fell into Tesco's arms just six weeks before its year-end. Speculators hoping for the optimistic estimates of 300p-plus a share could get their fingers burnt.