Market Report: Friendless BAT finds itself on the rack

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The Independent Online
BAT Industries, the financial services and tobacco group, was on the rack as a cloud of bearish stories wafted around the stock market.

The shares fell 19.5p to 462p with talk of unimpressive investment presentations and possible new US legislation doing much of the damage.

Analysts are in the US, largely to examine BAT's Farmers insurance operation. But a meeting with Brown & Williamson, BAT's important US toacco off- shoot, was said to have been poorly received. There was also talk of an unimpressive Brown & Williamson presentation to US analysts.

With reports from the Farmers meeting also producing little comfort BAT shares suddenly looked friendless.

At least two investment houses adopted negative stances, suggesting the shares should be sold.

BAT is known to be under pressure in the US cigarette market, where it is the third-largest player.

The market has been in disarray since April when Philip Morris surprised by cutting the price of its top selling Marlboro brand. It also lowered other prices.

The Clinton health reforms have also affected US cigarettes and there is talk of further legislative problems. Pressure is said to be increasing for legislation to be introduced that would limit the amount of foreign tobacco used in cigarettes.

It is likely that BAT shares would have weakened even further if SG Warburg had not produced an optimistic report on the insurance industry which, with vague talk of a takeover bid, helped composites higher.

Courtaulds was another blue chip to end what has been an uneventful account in sad decline. The chemicals group, which spun off its textile operation four years ago, tumbled 20p to 496p, a new year's low.

It has already felt the weight of a series of profit downgrades in recent months and the shares were ill-prepared for a sharp Smith New Court revision. It has cut this year's estimate by pounds 15m to pounds 180m and next by pounds 25m to pounds 200m. Last year Courtaulds produced pounds 192.7m.

The lower estimates stem from worries that Courtaulds will not get expected currency benefits, has problems in commodity- related operations and faces higher finance charges than had been expected.

The market tended to drift although a late New York-inspired rally allowed the FT-SE 100 index to close with a modest plus, up 1.8 points at 3.039.3. It has climbed 34.2 points in the account.

Oil shares continued to gain on the Opec agreement. British Petroleum rose 5p to 329.5p; Enterprise 12p to 470p and Shell 5.5p to 765.5p.

Food retailers had another difficult session, with the leaders falling to new lows for the year. Competition fears continued to erode sentiment.

The growing threat of US-style discount clubs adding their weight to the pressure already being felt from Continental and UK discounters, and worries about too many supermarket openings, kept the market's poorest-performing sector in ragged retreat.

Asda, with the added discomfort of a Hoare Govett downgrading, fell 2.75p to 55p. Argyll, the Safeway chain, was chipped 6.5p to 288p.

J Sainsbury, with UBS negative, dropped 13.5p to 416p and Tesco 4.5p to 193p.

Dalepak Foods served up another warning that there is not much respite for food manufacturers. The meat group, which suffered a sharp profit decline last year, said trading remained tough and it would not be able to hold its dividend at last year's 6p. The shares fell 45p to 125p.

Carlton Communications improved 18p to 767p, helped by an investment meeting, thought to be with Barclays de Zoete Wedd.

Amstrad held at 44.5p. Year's results are due on Tuesday with BZW looking for a pounds 7m profit against last year's pounds 71m loss.

The market continues to be intrigued by Amstrad's acquisition of Dancall, a troubled Danish cellular telephone group. Said BZW: 'The mobile area has the potential for blockbuster status, but the market is fiercely competitive and we do not yet know how advanced Dancall's product is.'

Smith New Court gained 7p to 341p. Directors and staff now hold 9.27 per cent of the capital, up from 4.58 per cent, following the exercise of options. Shares sold to cover the cost of options were placed by Cazenove with six institutions.

Forte fell 6p to 221p as NatWest Securities repeated its sell advice.

Division, the virtual reality computer group that came to the market in May, slipped 3p to 73p. It is switching stockbrokers. Henry Cooke Lumsden, which floated the company at 40p a share, is being replaced by Albert E Sharp. The shares have been as high as 102p.

Biotrace, a biotechnology company, is heading for the stock market via a share placing that is expected to value it at about pounds 35m. Its products, based on a substance that makes fireflies glow, are used to detect contamination in food and drinks. Customers include Bass and Unilever. The issue, sponsored by Allied Provincial, is generating much City interest.

Wilton, where the Malaysian entrepreneur Clive Ng has a leading role, seems to be about to give up effective control of tiny Emerald Energy, a 535 company where it has almost 50 per cent of the capital. Emerald seems set to become the quoted vehicle of the oil man Peter Winton. Assets are due to be pumped in and a placing is being arranged to produce about pounds 1.6m.