Market Report: M&S at four-year low in retail gloom

MARKS & SPENCER tumbled to a near four-year low as high street gloom continued to ruffle the stock market.

The investment house Henderson Crosthwaite was responsible for the latest embarrassment to engulf the once high-flying retailer. It suggested like- for-like sales were running up to 10 per cent lower and slashed its year's profit forecast from pounds 850m to pounds 800m. Last year's profit was pounds 1.18bn. The shares tumbled 5.75p to 390.25p with Seaq putting turnover at a not inconsiderable 11.25 million shares, most off the computerised order book.

Even before the Henderson onslaught, Marks had been subjected to a wide array of bearish rumours, ranging from shortages of certain lines to warehouses stuffed with unwanted goods. The retail chain's interim figures were bitterly disappointing, and the battle to run the group unedifying. The pounds 1.8m share sales by Keith Oates, the unsuccessful leadership candidate, last week also unsettled sentiment.

Henderson's researchers, Roy Maconochie and Matthew McEachran, say Marks' food side has been sluggish and its clothing sales "very weak". They reckon the shares could be a buy at around 350p.

The Henderson men say Marks' problems have increased in the Christmas run-up. With 16 to 17 per cent of the clothing market, the retailer is set for a mammoth sale which, according to industry sources, will not occur until after Christmas.

Messrs Maconochie and McEachran believe the Marks sell-off will knock other retailers. "They are going to have to clear a lot of stock, which is going to hit everyone else," they say. Marks is able to send some surplus lines back to its suppliers but they will respond by removing brand labels and returning the stock to cut-price retailers.

The fall-out from Marks' trading problems has prompted Henderson to lower other high street forecasts. Arcadia, which has already warned of a disappointing Christmas, is cut from pounds 63m to pounds 50m; Debenhams from pounds 146m to pounds 138m and Sears from pounds 43m to pounds 38m.

Footsie enjoyed a more confident session, reflecting New York's overnight strength, and closed 73.3 points higher at 5,630.4, encouraging supporting shares to edge forward.

Oils firmed as tension mounted over Iraq. At one time Lasmo was below 100p, the first time since 1986, with stories of a rights issue going the rounds. The shares ended 0.75p off at 101.5p.

Last month the oil group, which famously escaped the clutches of Enterprise Oil, said it was cutting 200 head office jobs in a bid to save pounds 30m and keep the company viable in the current environment of low crude oil prices.

British Petroleum rose 21p to 876.5p, although its merger with Amoco could face delay as the US Federal Trade Commission was reported to be seeking additional concessions before approving the giant Anglo-American merger.

Scottish & Southern Energy, the result of the Scottish Hydro-Electric- Southern Electric merger, started life at 681p, up 8.5p, with Dresdner Kleinwort Benson positive.

Allied Domecq, meeting analysts, rose 3.75p to 561.25p, and Racal Electronic, with the help of analytical talk and takeover chatter, put on 5p to 335.5p. The company described speculation about a bid from General Electric Co as unfounded. "We are not aware of any stake-building in Racal by GEC and we have not been approached," said a spokesman.

Reed International, the publisher, headed the Footsie leader board with a 34p gain to 476p. Renewed suggestions that Microsoft was stake-building in Reed's Dutch partner, Elsevier, were responsible for the interest. Reuters was also firm, up 37p at 577.5p.

Tesco ignored the retail gloom, climbing 5.5p to 172.75p. A rash of analytical support was responsible, with HSBC and Warburg Dillon Read among those upgrading.

On the under-card, corporate action continued. Vision, developing electronic cameras, jumped 14.5p to 48p as bid talks started. The chemical group Brent International was up 9.5p to 80.5p, as a possible suitor hovered, and Zergo put on 21.5p to 365p after paying pounds 33m for Baltimore Technologies, an information security group.

Hewetson, a building materials group, gained a further 10p to 195p as Kingspan produced a 200p-a-share (pounds 37.1m) take over.

Delta, the electrical group, firmed 10p to 112p, reflecting its customary year-end investment meeting. But its comments caused a short-circuit at BICC, down 5.5p to 57p. Negative observations about the cable industry apparently did much of the damage. Selling by a US investor was another influence. A parcel of 2.9 million shares was eventually picked up by an institution at 51.5p. There was surprise that Wassall, a venture capital group which has been piling into BICC and now has 9.1 per cent, did not buy the unwanted shares.

SEAQ VOLUME: 901.2 million

SEAQ TRADES: 66,251

GILT INDEX: 115.15 +0.01

TRICORDER TECHNOLOGY, developing 3D technology for digital cameras, held at 56.5p. Its bid to raise up to pounds 3m at 50p through an open offer closes on Monday. 3i, with 13.97 per cent, is taking up its entitlement. The company has been chosen as one of the European hi-tech groups to watch in a survey of venture capitalists and wealthy private investors. The shares were around 101p when they arrived on AIM in the summer.

SKETCHLEY, which sold its retail dry cleaning operations and now concentrates on providing textile and cleaning services to corporate clients, is back in the takeover frame. There is talk that a German group is on the prowl. The shares edged ahead 1.5p to 38p; they were down to 26p in October. Sketchley, largely due to its retail side, has had a difficult time; its shares were around 140p in 1996.