Buy-back speculation starts utilities' summer surge

MARKET REPORT

Will utilities again enjoy what is regarded as their traditional late-summer run? There are faint signs electricity and water shares are beginning to anticipate action ahead of their interim profits season.

Many utilities start disclosing their figures in October.

In the preceding close season, when reporting companies feel obliged not to talk to the stock market, it is not difficult for the more determined speculator to get some intriguing stories flowing.

Kevin Lapwood at stockbroker MeesPierson would not be surprised if, in the next few weeks, there is a rush of share buy-back and takeover rumours. "It has happened before and I can't see things being different this time round."

Many utilities are sufficiently well endowed to consider returning some value to shareholders, either through a buy-back or special dividend. Even BG, the old British Gas, which once seemed to spend much of its time pleading poverty, is regarded as a buy-back candidate with some thinking in terms of around pounds 1bn being earmarked.

With a Labour Government it is clearly in the utilities interests not to have too much surplus cash slurping around their systems. Far better then to gear up and hand any unwanted money to shareholders.

ScottishPower, up 10.5p to 438p, led the advance with the English generator National Power enjoying the additional glow of regulator Professor Stephen Littlechild's about-turn over prices with a 5.5p rise to 541.5p.

Among water shares Anglian rose 3p to 772.5p; Severn Trent 6p to 854.5p and South West Water 10.5p to 790.5p.

The rest of the market managed, just about, to go through the motions of a day's trading. Again attendance was patchy with the tail end of the holiday season and the August Bank Holiday taking their toll.

Trading was moderate with once more BT attracting a significant slice of the action as distressed arbitrageurs continued to seek sanctuary. BT fell 22.5p (after 29.5p) to 413.5p, the biggest fall of any blue chip.

Footsie started on a firm note, helped by a Dresdner Kleinwort Benson forecast it would be above 5,000 points at Christmas. Then worries about the market's and Wall Street's recent volatility eroded confidence and shares gave ground. Still, blue chips, helped by firm gilts, finished comfortably above the day's low point, reducing a 49.2 deficit to 14.8 by the close.

Worries linger about the direction of interest rates. Many fear Germany will lift rates next month, which could draw funds away from London although, of course, the argument the market is cheap in relation to continental markets would remain in place.

BAT Industries, despite the $11.3bn Florida settlement, led the blue- chip leader board with a 19.5p gain to 533.5p. Societe Generale Strauss Turnbull regard the shares as a buy. The Florida deal is seen as a local enactment of the broader $368.5bn proposed national settlement.

Vaux, strong last week on talk of corporate activity, fell 12.5p to 288.5p as DKB said sell. The investment house suggested the progress had left the price "unsustainable". The pounds 48m sale of its 38 nursing homes and five three -star hotels was not such a good deal as many had expected. And analyst Andrew Holland believes speculation that management changes could lead to a demerger of the brewing and hotel operations was unjustified.

WH Smith, figures today, fell 11p to 367.5p and Dixons suffered from profit taking, off 10p to 654p.

Eurocopy, the office equipment group, slumped 26p to 32p on a profits warning and Astec (BSR) fell 22.5p to 137p.5p following disappointing results.

Little property group Delyn held at 97.5p. The hostile bid from Newport is doomed with shareholders accounting for 55.97 per cent of the capital supporting the board's rejection.

Pan Andean Resources, raising pounds 482,000 by placing shares at 36p, rose 4.5p to 48.5p.

Biocompatibles International, the healthcare group, recovered 62.5p to 1,157.5p on talks its long-awaited deal with the US giant Johnson & Johnson is at last nearing completion.

The group is involved, it is thought, in wide ranging talks with J&J. It was originally said that the American group was negotiating to use Biocompatibles "stents" , valves which free blocked arteries.

The talks should have been completed in June, prompting the shares to weaken from around 1,400p. However it is thought the negotiations have dragged on because other Biocompatibles products have interested J&J which has a stake in the company.