Footsie's rip-roaring performance forces many analysts to play new tune

STOCK MARKET WEEK

The stock market has again confounded the experts. Few, if any, forecast a rip-roaring springtime run lifting Footsie to more than 4,600 points - the sort of level optimistic souls predicted for the year-end.

The sheer size of Labour's majority and the subsequent resounding blue chips display is prompting many strategists to play a new tune.

Footsie was at a peak a few days before John Major signalled the May Day poll. Since then it has climbed more than 200 points, achieving its longest uninterrupted winning streak for four years.

It could have much further to go. Ian Scott at Lehman Brothers suggests it could be approaching 10 per cent undervalued. He likes the "positive backdrop" for equities, including the rich cash hoards of the institutions with pension funds "at the top end of their historic range with the only precedent being at the time of the Gulf crisis". Panmure Gordon is in a similar mood, predicting 5,000 by the year-end.

Still, it is not all unabashed cheer. ABN Amro Hoare Govett's Mark Brown has revised his Footsie targets to 4,500 for the year-end and summer next year. Goldman Sachs remains cautious although it seems to be threatening to become more enthusiastic and Richard Jeffrey at Charterhouse Tilney is still, remarkably, on 4,100 for next month and 4,000 for the year-end.

The Footsie constituents have, as usual, turned in an uneven performance. Without the strength of money shares and most consumer sections the index display would have been uninspiring. Utilities have made a reasonable contribution with mining and services offering little support. The conglomerates, engineers and others in the general manufacturing sector have had a torrid time.

It has also been a split market. As the blue chip index has tested new highs, the second-and third-liners have limped lamely behind, even failing to fully enjoy their near-traditional bright start to the year.

The FTSE 250 index, for example, is still well below its peak and looking decidedly jaded.

The strength of sterling, the possibility of higher interest rates here and in the US, and the looming Budget could take their toll of blue chips although the sheer exuberance of financials, with the ongoing need for institutions to build stakes, should remain a bullish influence. New York's future direction could also be crucial to sentiment.

Andrew Cates and Andrew Roberts at UBS expect Gordon Brown's debut Budget to tighten the fiscal stance by some pounds 3bn - plus a pounds 5bn, or thereabouts, windfall tax.

Acquisitive ScottishPower, one of the likely windfall casualties, is due to produce year's figures on Thursday. A significant surge to around pounds 545m from pounds 404.8m is expected. But it is Allied Domecq, the pubs and spirits group, which will capture much of the attention. Its dispiriting displays have made it a fixture in the last-chance saloon.

There are hopes the arrival of chairman Sir Christopher Hogg will arrest the decline. It is early days yet but tomorrow's interim figures will be anxiously examined for evidence he is making his presence felt. He has rejected the view that Allied should be broken into two stand-alone companies - pubs and spirits.

The group has abandoned its original business - brewing. One of Margaret Beckett's first jobs at the Board of Trade will be to decide whether Bass, which bid nearly a year ago for Allied's Carlsberg-Tetley brewing interest, will be allowed to clinch the deal.

Even if she rules against Bass, Allied's CT involvement will be no more than a 14.9 per cent shareholding.

Analysts expect interim profits to be modestly lower. John Wakely at Lehman suggests the group needs to cut its dividend. It is short of cash to develop its pubs and put promotional muscle behind its brands, particularly in the US where for the first time for 20 years spirit sales are strengthening.

Graeme Eadie and Michelle Proud at NatWest Securities wonder whether the worst is over.

If it is, the shares, near their low at 428.5p, are cheap, "but until management can prove that it can take the business forward the shares are likely to remain friendless".

Grand Metropolitan, one of Allied's deadly rivals to satisfy the thirst for spirits, is thought to be in line for a modest interim profits increase to pounds 470m.

Cable & Wireless should ring in with profits comfortably ahead, around pounds 1.35bn against pounds 1.26bn. Last week's figures from Hongkong Telecom failed to draw any clue about its future relationship with its 58 per cent-owned subsidiary. There are hopes that details, or at least some indication about the deal with the Chinese government, will emerge with Cable's figures.

Its overpowering rival, BT, also has a big deal in its sights, MCI of the US. There is also its signalled move into entertainment broadcasting. Year's figures should be pounds 3.62bn, up from pounds 3.50bn.

Hanson and one of its former divisions, Imperial Tobacco, are also in the reporting frame. Hanson, the building materials rump of the four-way demerger, should manage interim profits around pounds 75m, believes Leslie Kent at MeesPierson. He regards New Hanson as a "very, very fine Anglo- American building and construction play".

Imps, after 10 years of Hanson dominance, is now enjoying its freedom although it operates in a mature market where competition is increasing.

As an independent company the old Imperial managed to spread its wings. Now it has turned a full circle and, stripped of such diversifications as Courage brewing and Golden Wonder crisps, is forced to rely on cigarettes and tobacco. Half-year profits are expected to be around pounds 140m, with pounds 325m on the cards for the year.

Safeway, the superstores chain, could produce year's results of pounds 425m (pounds 401m) and Burton's revival should continue with interim results of pounds 110m up from pounds 88.1m.