Investors pile into carpets after Allied's price cut

MARKET REPORT
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The Independent Online
Carpets were king yesterday as investors piled into two of the sector's biggest players. The welcome mat was rolled out for Allied Carpets, the leading carpet retailer making its stock market debut, while rival Carpetright, headed by the irrepressible Lord Harris of Peckham, rode high on news that sales in the first 12 weeks of the year were a third up on the same time a year ago.

Last week Allied succumbed to recent stock market turbulence by cutting its flotation price to 215p, at the lower end of the 205p-235p range indicated in the prospectus. Although the intermediaries offer was not fully taken up, such caution proved somewhat excessive as the shares raced to a 19p premium on their first day of trading. A chunky 9.1 million shares changed hands.

At the offer price, Allied stands on a prospective price-earning multiple of 13 times, substantially below the high teens rating Carpetright commands. But brokers like Mees Pierson have pencilled in compound growth of at least 40 per cent over the next three years as the store opening programme is rolled out, and reckon the shares could hit 300p by next summer.

Although margins are half those of Carpetright, Allied is seen as pinching market share from the independents, who still control 58 per cent of the carpet trade and target the same middle-to upper income customer as Allied. Moreover, the carpet market itself is set to grow again as the number of housing transactions increases with rising consumer confidence.

But the anticipated switching out of Carpetright into Allied failed to materialise as Lord Harris gave shareholders an upbeat trading assessment at their annual general meeting. He disputed market leadership with Allied by claiming a 14 per cent share and reiterated his aim of opening 25 more stores this year. The shares responded by closing 25p higher at 547p.

A firm start on Wall Street reinforced the Footsie, which ended the session at an intraday high of 3708.4, up 27.1 points. News that Tesco would not be bidding for French retailer Docks de France also helped sentiment. Dealers had feared a rights issue of up to pounds 1.5bn to fund the deal.

Tesco, up 8p at 286p, was the second best performing blue chip of the day behind, BSkyB. Shares in the satellite broadcaster hit a record high of 494p, 14p better on the day, as fears of a reference to the Monopolies and Mergers Commission over its links with leading cable television operators receded.

Technology stocks, which have been hit hard by the recent sell-off on both sides of the Atlantic, were back in demand following strong fourth quarter earnings from software giant Microsoft.

Among the second and third-liners, Micro Focus advanced 80p to 770p, CML Microsystems rose 5p to 109p, while Epic Multimedia, doing the rounds among institutional investors, rebounded 7p to 78p.

Among the banks, HSBC put on 25.5p at 1,068p after a profits upgrading from brokers Merrill Lynch and Goldman Sachs ahead of the interim results in the next two weeks.

BZW's global hunt for buyers of Standard Life's 29 per cent stake in Bank of Scotland ends today with the close of its international book-building exercise. Bids towards the upper end of 220-230p a share range are understood to have been submitted, a small discount to last night's 230.5p closing price. Pricing and allocation of the shares could be announced later on today.

British Gas extended yesterday's gains, adding a further 5p to 195.5p on positive reaction to the industry regulator Ofgas's decision to delay a pricing decision about its TransCo pipeline arm.

British Airways took a hit late in the session as the President of the Board of Trade, Ian Lang gave UK competition authorities the go-ahead to investigate the carrier's proposed alliance with American Airlines. BA's shares ended 4.5 lower at 410p after touching 517.5p earlier.

Also in the closing moments of play, Lex Service picked up 1.5p to 35.5p after the Minister for Defence Procurement, James Arbuthnot, announced the group had won a five-year contract to supply, maintain and manage the RAF's fleet of cars, vans and minibuses.

A profits warning from Filofax cut the shares to shreds. They finished 105p down at 165p after the company warned that its UK business would be hit by WH Smith's decision to reduce its stock levels.

Signet, the former Ratners jewellery chain, closed 1.5p higher at 24.5p despite denying reports it had agreed the sale of its UK businesses to venture capitalist Apax partners for about pounds 280m.

TAKING STOCK

r Shares in Shield Diagnostics, the Dundee-based medical diagnostics company, rose 13p to 144p after Hamish Hale, the chairman, picked up 40,000 shares at 133p. The timing of the deal could be significant. Investors are awaiting the results of independent clinical trials in the US on its blood-clotting testing kit to measure the probability of heart attacks and strokes.

r Bridgend, owner of the Stocks country club in Hertfordshire, ended 2p firmer at 23p. Last year it sold the Imperial Hotel in Cork to Hanover International, where Bridgend retains a 48 per cent stake. Shares in Hanover were suspended yesterday pending approval of a pounds 40m deal to buy six hotels to be funded by a placing and open offer. Bridgend is seen benefiting from the deal.

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