Market Report: Investors keep eyes peeled for next float candidates

WITH the pounds 700m 3i share sale enjoying far greater success than many had expected, the stock market was tempted to focus on two long-rumoured flotations.

The Thorn EMI split of its music and rental divisions and the Hillsdown Holdings demerger of its housing operation were the main talking points as the two groups made contact with analysts.

Thorn is, apparently, planning a big jamboree next month, taking analysts to Copenhagen, Birmingham and then the US. The excursion was immediately seen as the start of a warming-up process ahead of the long-anticipated demerger.

Hillsdown is thought to be keen to concentrate on its core food business and wants to demerge its Fairview housebuilding side.

It has held a series of analysts' meetings which have sought to underline the basic strength of the group.

There has been widespread speculation about a Thorn demerger. UBS raised the possibility in April. The theory is that the split will go ahead once Thorn has finished its disposal programme. A number of interests have been sold but the defence business, on the block since 1989 and regarded as an essential disposal before a demerger can be achieved, has appeared desperately short of suitors.

However, once the split has been achieved there is talk the music side will seek to add a publishing house to its operations.

It is not clear whether Hillsdown is contemplating selling its furniture side along with Fairview. At one time the food group was one of the most acquisitive of quoted companies, gobbling up a wide range of businesses in a hectic takeover spree.

But under the chairmanship of Sir John Nott, the former cabinet minister, it has been consolidating and rationalising.

Thorn shares gained 28p to 1,026p and Hillsdown put on 6.5p to 165.5p.

The 3i float pulled in pounds 178m from non-institutional investors, representing a full subscription. Sir George Russell, 3i chairman, described the response as a 'very major achievement'.

The rest of the stock market was in a confident mood, with the FT-SE 100 index up 17.7 points at 2,964.4. There was said to be evidence of selective institutional activity, with supposedly oversold shares attracting attention.

The unchanged German and US interest rates were accepted with equanimity but there were worries today's US payroll figures could trigger rates action. Bond markets were, however, settled and government stocks rose by up to pounds 3 4 .

Royal Bank of Scotland attracted much of the market action as Smith New Court, in a bought deal, tried to place 20 million shares at 412p.

The securities house clearly found the exercise a struggle and by the close it appeared to be left with much of the stock which, it is thought, came from a US institution.

There were suggestions Schroders had sold its RBS shares to help finance the not-unexpected acquisition of the outstanding interest in its US associate, Wertheim Schroder, for dollars 92m. But the Schroders group denied any such action. RBS shares closed 8p down at 418p.

General Accident was also the subject of an unsuccessful placing. James Capel was said to have up to 5 million on offer. Volume was probably 1 million. The shares fell 5p to 566p. Capel's endeavours could not have been helped by a Smith sale recommendation for another insurer, Royal, off 6p at 246p.

Pearson, the publisher, added 12p to 582p on Barclays de Zoete Wedd support. It lifted its estimates from pounds 244m to pounds 260m and from pounds 265m to pounds 282m. Mirror Group Newspapers gained 7p to 138p as Mercury Asset Management increased its stake by 250,000 shares to 19.01 per cent. Goldman Sachs was behind a 7p gain to 757p by Reed International.

Building and related shares were firm on an optimistic housing report. RMC rose 33p to 701p and Barratt Developments 7p to 209p. Blue Circle Industries went from 306p to 314p as SG Warburg upgraded.

The blocking of a complex VAT-avoidance scheme by the Inland Revenue helped the big car fleet operators. Cowie advanced 13p to 270p and Lex Service 13p to 438p.

BT continued to enjoy the Robert Fleming recommendation, up 10p at 293p. The partly- paid rose 8.5p to 273p.

Learmonth & Burchett crashed 40p to 85p following losses and a pounds 2.3m rights issue.

Dealings have started in the shares of the first 535 investment trust, Athelney. So far 'well in excess' of pounds 250,000 has been pulled in with promises of 'further substantial support', Robin Boyle of its backers, Dunbar Boyle & Kingsley, said. Predictably the opening price was 50p, the level at which the shares are on offer. The trust intends to specialise in 535 and other junior markets.

The savage rerating of Intercare, the medical products group, continued with the shares down another 3p to 61p. A year ago they were nudging 180p. The retreat reflects the end of impressive profits growth. Last year's pounds 4.5m was below expectations and after an unexpected interim decline market forecasts for the current year have been cut from pounds 6m to nearer pounds 3m.

The FT-SE 100 index gained 17.7 points to 2,964.4 and the supporting FT-SE 250 index 16.5 to 3,454.7. Turnover was 567.2 million shares with 10,130 bargains. The account ends on 15 July with settlement on 25 July.

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