Market Report: Compass sell-off helps point FTSE downhill

COMPASS, the catering group, yesterday served up a tasteless dish that left investors scrambling for the exit.

The flea in the ointment came courtesy of Accor, the French restaurant giant with a 4.9 per cent stake in the UK group. The Parisian gourmets decided to issue a dishy bond which can be converted in Compass shares at any time between now and 2002.

The fixed-income instrument, worth 390m euros - more than pounds 265m - enables the French, which once held some 22 per cent of Compass, to get out of the former Grand Met's offshoot. But it is also a neat way to hedge risks on Compass as investors can sit on the bond and wait to see how the share price moves before deciding whether to convert.

The trick is that the conversion price is set at a 26-30 per cent premium to the current share price, suggesting that punters will rush to convert if the stock rises. "It's a great instrument for those who are worried about Compass valuation. If the shares take off they can convert, but if they fall, they stay with the bond," one insider said.

The appearance of the bond prompted several investors and hedge funds to sell Compass and buy the bond. The switch left the stock, one of the great outperformers of recent times, more than 44.5p lower at 746.5p in a hefty volume of nearly 12m shares.

Compass was saved the embarrassment of the FTSE 100 wooden spoon by Rentokil Initial. The hygiene group, down 48p to 400.75p, cleaned up as the worst- performing blue chip after missing out on its 20 per cent earnings growth target for the first time in 13 years. Brokers rushed to downgrade 1999 profits by some pounds 15m on worries that Rentokil's soaraway success is finally coming to an end.

The catering and cleaning tribulations were a rare spot of excitement in a dull day. The FTSE 100 index closed a mere 0.4 ahead at 6,061.3 in thin volume as a number of big hitters stuck to the sidelines ahead of today's interest rate decision.

Allied Domecq was in good spirits on renewed talk of a demerger of its drinks and pubs subsidiaries. The stock fizzed 4p up to 477p, as analysts highlighted the takeover attraction of the two components and said that a split Allied is worth around 560p.

Allied's booze brands, which include Beefeater gin and Teacher's scotch, will be a great catch for the Canadian group Seagram or the US rum giant Bacardi. The under-performing pubs could be sold to a UK brewer.

Insurers were in good form, buoyed by a positive general insurance result from Norwich Union, up 5p to 451.75p.

CGU latched on to its rival's good news and soared 43p to 928p. A Goldman Sachs "outperform" recommendation also helped. Royal & Sun jumped on the bandwagon and finished up 21.75p to 533.25p.

GEC continued to live off Monday's purchase of the US telecom equipment company Reltec, and put on 20p to 536p. GUS, the catalogue retailer which owns Argos, ordered a 26p advance to 822p as Merril Lynch set a 875p price target. Marks & Spencer was still reeling from Monday's gloomy note from WestLB and lost 16.25p to 395p.

The undercard was a much happier place, with the recent bid fever showing no sign of abating. A string of good results also helped and the FTSE 250 rose 18.9 to 5,277.3, the highest since the beginning of the year. The Small Cap marked time and ended 2.3 lower at 2,276.3.

British Land developed a 21p rise to 529.5p. The talk is that the float of Canary Wharf could prompt the property group to spin off its Broadgate complex in the City of London. Land Securities followed suit with a 14p rise to 837.5p, and MEPC, up 10p to 480p, completed the property hat-trick.

Housebuilders were looking solid thanks to Redrow's optimism on the much- hated planning delays. Beazer led the pack with a 13p increase to 186.5p, Wilson Bowden was 40p higher to 623.5p, Barrat grew 10.5p to 273.5p, while Wimpey, the biggest of the lot, built an 8.5p rise to 142.5p.

In a related sector, Brandon Hire, the equipment group, climbed 11p to 99.5p. Rival Hewden Stuart is believed to have had a look.

Weir, the Scottish pump maker, was left high and dry after its rebuffed US suitor Flowserve refused to table another offer. The stock fell 2.5p to 242.5p as the prospect of a 400p-a-share bid disappeared.

The bid target First Choice suffered a 2.5p fall to 177.5p on profit- taking after Monday's spike. The hyperactive Philips & Drew declared a 11 per cent stake in the stalked travel group. Express Dairies went off 5.5p to 115.5p on talk of a big shake-up at the Milk Marque, the organisation that control the milk's price.

Cookson, the bombed-out engineer, fell 7p to 154.5p on speculative selling ahead of today's results.

Jardine Lloyd Thompson, the insurer, and Arriva, the transport group, were part of the good results' brigade. JLT rose 12p to 182p as merger benefits helped the 1998 figures, while Arriva travelled 14.5p higher to 391.5p as Warburg and Albert E Sharp said "buy".

Close Brother reversed Monday's fall with a 58p rise to 690.5p as brokers upgraded after the interims and the market woke up to the appointment of the former Warburg chief David Scholey as the new chairman.

Among the minnows, Petra Diamond, the exploration group, dug up a 35 per cent rise to 81.5p after winning a South African contract.

Provend, a drinks machine-maker, enjoyed a 31p rise to 148.5p after toasting a bid approach.

Takeover rumours were swirling around the money broker Trio, up 1.5p to 10.75p, after Monday's decision by a major shareholder to sell its stake.

CCI, a former clay pigeon shooting outfit, completed its reverse takeover of the Xavier computer group, unchanged at 16p. From today, the new Aim- traded company will be called XKO.

SEAQ VOLUME: 964.8M

SEAQ TRADES: 76,104

GILTS INDEX: 112.97 +0.07

EXPECT SOME activity in Bula Resources after a board shakeup announced after the market closed.

Albert Reynolds, the former Irish prime minister, is the new chairman of the oil exploration company, unchanged at 1p yesterday. Tony Peart, a Lasmo veteran, becomes managing director. The high-profile appointments come with a Ipounds 1.75m placing at 1p. Funds will be used to back ventures in Libya and Iraq.

LUKE JOHNSON, the Pizza Express entrepreneur, yesterday bought a 4.17 per cent stake in GEI International, a maker of packaging machines. Mr Johnson's knack for putting undervalued companies into play triggered a 6p rise in the shares to 44.5p. The company has seen its share price collapse from 114.5p in the last few months amid worries over market conditions. Despite yesterday's rise, the shares are well below GEI's asset value of 61p.