Market Report: BAT keeps warm despite Wall Street's cold feet

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ANOTHER round of US interest rate jitters tormented shares. Higher-than-expected inflation figures revived all the old fears, and with New York getting cold feet the FT-SE 100 index fell 40.7 points to 3.139.3.

But BAT Industries survived the slump, closing 1p firmer at 434p as two investment houses made bullish noises.

Henderson Crosthwaite and Smith New Court think BAT's US tobacco operations are being overlooked and the stock market has allowed itself to be mesmerised by the group's American insurance operations.

This year Henderson believes BAT profits will climb from pounds 1.8bn to pounds 2.08bn, with pounds 2.4bn next year and pounds 2.6bn in 1996.

BAT's Brown & Williamson offshoot, the third-largest US tobacco group, has increased its market share by 1 percentage point to 11.3 per cent in the past six months. Its proposed dollars 1bn acquisition of the American Brands cigarette business can only strengthen its position and help cash flow.

BAT shares have moved in line with the insurance sector. But measured against its US tobacco rivals, Philip Morris and RJ Reynolds, they have trailed by 25 per cent.

Henderson points out that since November US cigarette prices have been increased three times, with the margins of the so- called value-for-money brands - BAT's strongest area - nearly doubling. And, it is suspected, the feared sharp increase in US tobacco taxes could be put off indefinitely.

The US insurance side, with worries about solvency requirements at its Farmers subsidiary, could remain a drag. But the tobacco operations should underpin dividend growth.

Henderson regards the shares as a buy. So does Smith, which has switched its recommendation from hold to buy.

But most American-influenced shares were in retreat as the US producer prices index caught traders off guard.

Shares were lifeless before the figures. Within minutes of their appearance a ragged retreat was under way and at one time the 100 index was down 46 and, some feared, set to test 3,100. Government stocks took the predictable pounding, falling almost two points.

Bargain-hunters, taking the view that the sell-off had been too indiscriminate, prompted a modest recovery. Even so it has been a rotten week for the market, with the index crashing more than 80 points.

Turnover, however, has generally been light with very little evidence of any significant selling by domestic institutions, although some overseas investors have been less reticient, with Continental selling detected.

BTR had another unsettling session, with an attempted rally soon extinguished. The shares ended 9p lower at 329p with the warrants again ragged.

Two more trading statements caused dismay. Asprey, the jeweller, was crushed 110p (after 132p) to 200p and Perry, the car dealer, reversed 23p to 175p.

British Airways, off 8p to 402p, was subdued by the US aircraft disaster involving its associate USAir.

VSEL was encouraged by talk that it could attract a General Electric Co bid. It gained 28p to 963p with GEC off 4p at 290.5p. British Aerospace, for long accorded the distinction of being the most likely to attract GEC firepower, dropped 17p to 497p.

Enterprise Oil continued to draw strength from its results, gaining another 9p to 409p. Talk is beginning to surface that Elf, the French oil giant, is growing restless about its 23.25 per cent interest and efforts will soon be under way to arrange a placing of all, or part, of the stake.

Boots fell 9p to 528p. Kleinwort Benson reduced its estimates by pounds 15m to pounds 530m for this year and by pounds 25m to pounds 590m for next.

Cable and Wireless lost 11p to 419p. There is increasing talk that it will sell the remainder of its Hongkong Telecom offshoot. Its controlling shareholding accounts for more than 90 per cent of its market valuation.

British Petroleum, like so many, failed to hold an early gain, ending 2p off at 418p. Smith is enthusiastic, suggesting a share buyback is a possibility.

Iceland, the food retailer, gained 2p to 164p. Director Peter Hinchliffe sold 1.5 million shares at 161p.

Troubled Scantronic put on 6p to 34p as it disclosed takeover approaches. Suggestions that the lossmaking publisher Harrington Kilbride was on the verge of clinching an impressive publishing deal lifted the shares 5p to 57p (after 63p).

Stanley Leisure, negotiating to buy 70 betting shops, held at 342p and World of Leather, making a one-for-two rights issue at 75p to raise pounds 2.8m, fell 4p to 90p.

THE FT-SE 100 index crashed 40.7 points to 3,139.3 and the supporting FT-SE 250 index lost 25.8 to 3,736. Turnover was a modest 642.3 million shares with 26,870 bargains recorded. Government stocks fell by nearly pounds 2.

Restaurants are poised to 'become star performers', Kleinwort Benson believes. Analysts Paul Slattery and Greg Feehely say restaurant groups are not overburdened by debts or excessive property valuations. Of the smaller groups they like Groupe Chez Gerard (101p), My Kinda Town (13.5p), Pelican (99p), and Pizza Express (127p). Aberdeen Steak (36p) is a sell.

Property Trust, in effect controlled by the Cheng family of Hong Kong, returned to market at 52p, closing at 55p. The shares were suspended at 41p while the group undertook a reorganisation that involved the acquisition of a one-third interest in a development in Guangzhou, China. As part of the reshaping the company is now based in Bermuda.