Market report: BAe takes off as Deutsche Bank gives shares a lift

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BRITISH AEROSPACE took off as Deutsche Bank got behind the shares. The price climbed 26.75p to 460p after the investment group switched its view from under-perform to outright buy.

It said: "With Airbus [where BAe has a 20 per cent interest] shifting up into a more profitable phase, the Eurofighter programme stepping up and all non-aerospace and defence businesses sold, the balance of risk and reward in the shares has improved".

The proposed Marconi takeover from the General Electric Co has, it added, increased BAe's options.

Deutsche expect l0 to 12 per cent earnings per share growth from this year to 2,001.

It calculates the aerospace group's shares are trading at a 30 per cent discount to the global industry average and puts a near term target price of 550p on them.

Investment house Credit Lyonnais was also thought to be looking more kindly on BAe, adopting an "overweight" stance. BAe was flying at 531p at the end of last year. It has been as high as 545p.

Footsie ended the week with a flourish. The index closed 62.8 points higher at 6,180.8, helped by New York where, at least during London hours, a more relaxed approach was evident to interest rates.

A peaceful futures and options expiry also helped sentiment. Supporting shares were in good heart, helped along by continuing take over action on the under card.

Generally, trading was thin but Pilkington, the glass maker, was a noticeable exception. In heavy volume, the shares rose 3.5p to 118.5p as the take over story continued to gain momentum. A management buy out at 150p a share is the popular guess. At least one venture capitalist-backed bid has been rejected in recent months.

Greenalls, the struggling hotels and pubs group, was another to attract attention. The former brewer has disillusioned the market with a batch of profit warnings but there are hopes it will soon announce the results of a strategic review.

There is talk the master plan could lead to the 800-strong chain of pubs broken up and sold in lots - possibly chains of about 150. The group would then concentrate on its hotel side, selling or closing its wholesale operation.

The major brewers and pub companies would be interested in Greenalls retail spread, although there may be few takers for the troubled wholesale side. The shares rose 6p to 363p.

Worries of dividend cuts ruffled the water companies. United Utilities fell 12p to 698.5p and indebted Hyder, where Credit Lyonnais expect a 60 per cent reduction, sunk 11.5p to 549.5p, a low.

The speculative temperature remained high on the drugs ward. The feeling Glaxo Wellcome is near to unveiling a bid for American Home Products continues to circulate. Glaxo gained 12p to 1,633p. SmithKline Beecham added 16p to 807p and AstraZeneca 84p to 2,423p.

Suggestions that Paul Walsh was about to be appointed chief executive of the Diageo spirits giant, gave the shares a kick. Even after a denial, they held on to an 18p gain at 599.5p. Mr Walsh runs Diageo's Pillsbury food arm.

Smiths Industries fell 7p to 986p after SG Securities suggested investors should switch into Rolls-Royce, off 1.25p at 261.5p. Rolls is due to fly in with interim figures next week; around pounds 135m is expected against pounds 135m last time.

Takeover action prompted a 26.5p jump to 452.5p at Farlake, a fund manager. A German group, Value Management & Research, which already has a near 26 per cent shareholding, has made a bid approach and has increased its interest to 45.5 per cent. AIM Trust, which is having a rewarding run, has 8.5 per cent of Farlake.

Focus Dynamics, an engineer, succumbed to an already signalled management buy out. The offer, backed by Sandy Anderson, who made a fortune from the sale of the Porterbrooke train leasing company, already has the support of shareholders with 47.2 per cent of the capital. The shares rose 2p to 31.5p.

Allied Carpets piled on further value, up 4.5p at 61.5p. Brown & Jackson said it would like to bid and then Wassall, the conglomerate, moved into the market. Brown & Jackson, following the expected upbeat profits display, put on 4.5p to 187p, a five year high. Wassall, with 14.9 per cent of Allied, held at 238p.

Photo-Me International's high-flying run was eroded again when the shares fell 105p to 1,200p. They have risen from 330p to touch 1,365p in the past 12 months but director share sales on Thursday blunted the market's enthusiasm.

Affinity Internet's remarkable progress continued. The shares sold to investors at 70p in May surfed a further 49.5p to 332p. It completed the acquisition of Brightfibre Communications, an eight- month-old telecom reseller focusing on smaller and medium sized firms.