Market Report: Rival's price cuts shove Unilever to year's low
Wednesday 14 July 1993
A round of price cuts by Procter & Gamble, the big US group that is Unilever's main detergent rival, did the damage.
Procter is reducing prices on some products by up to 15 per cent, putting intense pressure on the other players in what is already a highly competitive industry.
Since Philip Morris sharply reduced some of its prices, including the flagship Marlboro cigarettes, in April, the market has been nervous about the position of heavily branded groups.
Unilever has been regarded as an obvious casualty of any price war. Many of its brands were thought to be vulnerable and the market fretted about margins being eroded.
The Philip Morris experience, however, never spread to the Anglo- Dutch group although its shares remained nervous. Profit downgradings have also been in the air. So the sudden splash of more price cuts from Procter, which had reduced prices in March, sent some scrambling to sell and market-makers scurrying to shore up their defences.
Trading was at one time heavy, with Seaq putting the day's volume at 4.6 million shares.
With Unilever's US detergent operations representing 1.5 per cent of profits, the transatlantic market is important but not an essential part of its spread. But the Procter moves are clear evidence of the increasing tendency to win sales at the expense of margins, strengthening the longer- term doubts over Unilever and other brand owners. Last year Unilever shares almost touched 1,250p.
The rest of the stock market ended a three-day losing run with the FT-SE 100 index up 6.2 points at 2,837.1. The surprisingly strong industrial production figures for May helped, but the market's response was muted by the realisation that May's production reduced the chance of interest rate cuts.
A number of programme trades attracted attention, although turnover was below 600 million shares.
Imperial Chemical Industries had a see-saw session, recovering from an early fall to close 5p higher at 645p. NatWest Securities repeated its bearish stance, forecasting unchanged dividends until 1997 and suggesting that the shares should be nearer 550p.
But British Aerospace continued to gain altitude. The seemingly once- crippled group's latest progress stemmed from indications that Taiwanese finance for the joint regional passenger jets venture had been found. It seems the island's government and a local banking consortium will put up the cash, ending fears that the link will have to be abandoned.
With the big Saudi Arabian contract hovering and a profit upgrade from Barclays de Zoete Wedd, the shares rose 7p to 427p. BZW lifted its estimates from pounds 105m to pounds 125m and from pounds 215m to pounds 235m and rates the shares a buy. The securities house was, however, less kind to Lasmo, the oil group. It believes the shares 'can only go lower'; sufficient to clip another 3p from the price to 150p.
Financials had a good session, although Abbey National weakened 3p to 414p as Robert Fleming Securities said the shares were overvalued; SG Warburg switched from buy to hold and Hoare Govett said sell.
BT continued to encounter selling, with the shares slipping 2.5p to 410.5p, with some income funds said to be selling to take advantage of the yield on the new shares.
The income funds presumably run the risk of upsetting Warburg, handling the share sale. It has warned them that selling of the old shares could lead to their allocations being cut.
Warburg, said to be on BT3 benefits and some determined buying by Smith New Court, jumped 16p to 734p.
Commercial Union led composites higher as the message got round that the sector faced little exposure to the US flooding and Japanese earthquake disasters.
Water shares quickly lost their taste for the latest Ofwat report. After early strength, many ended lower. Media shares remained in the limelight following the tabloid price war. Mirror Group Newspapers slipped another 2p to 151p and United Newspapers lost 14p to 521p, with the doubts about its pounds 190m rights issue causing some anxiety. The nil paid rights dropped 13p to 42p.
Hammerson 'A' shares firmed following the strong rights take-up. BZW placed the rump as a package. The shares rose 7p to 305p. The ordinary were unchanged at 334p.
Tiphook, results today, continued to be actively traded. James Capel's fund management arm told the company it had cut its stake below 3 per cent. The shares rallied 12p to 286p.
MR-Data Management, the records management bureau formerly Microfilm Reprographics, rose 15p to 182p. Michael Elliott has replaced Sidney Cordier as managing director. Henderson Crosthwaite likes the shares, suggesting profits of pounds 8.5m this year and pounds 10m next.
Amberley, the building preservation group, lost most of Monday's gain, closing 5p down at 38p. Peter Cox, the unquoted stone group, has sold its 29.9 per cent interest.
Farepak, a food hamper and meat processing group, celebrated a planned move from the USM to main market with a 10p gain to 300p. To allow the change Farepak's controlling shareholder, its chairman Bob Johnson, has reduced his shareholding. Hoare Govett placed 2.05 million shares (9.06 per cent) at 286p. Mr Johnson still represents 46 per cent of the capital.
Court Cavendish, the country's fifth-largest nursing homes operator, made an unhappy debut, suggesting the market is growing weary of the run of new issues. Sold at 225p, the shares ended at 207p in often brisk trading. At one time they touched 201p. The issue had been expected to achieve a first- day dealing premium. After all the offer was 2.2 times subscribed and allocations were scaled down.
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