Market Report: Rolls hitches a ride on flying Footsie

ROLLS-ROYCE, the aero-engine group battered and bruised by the Asian crisis and the strong pound, climbed 20.75p to 236p following British Airways' decision to fly Airbus.

As the stock market continued to recover from Red Friday, Rolls drew encouragement from the $830m (pounds 510m) it will gain if BA takes up all its Airbus order and from the possibility that it will also be involved in the Boeing remnant of the deal.

Rolls, with interim results due tomorrow, is the subject of a fierce analytical debate. Some believe the group is allowing its profit margins to be squeezed too tightly, relying on the expectation that it will capture the renewal and servicing contracts for its engines. Bruce MacDonald at BT Alex.Brown believes this after-market strategy is "highly risky". He expects tomorrow's figures to show a double-digit sales increase but margins falling again. Profits are likely to emerge at around pounds 155m against pounds 116m.

Rolls shares peaked at 304.5p in May. Fears that Asian orders are being cancelled or deferred and that sterling is having a dramatic impact have prompted the dive.

British Aerospace, with 20 per cent of Airbus Industrie, rose 10p to 430p and BA, expressing relief that its ageing Boeing fleet was being replaced, put on 6.5p to 503p.

Footsie achieved a 100.7-point gain to 5,654.4. It is comfortably above the level hit on Friday when fears of a worldwide crash devastated sentiment.

The mid cap index also perked up, gaining 44.3 to 5,100.3, but the poor old small cap players were again in the doldrums with the small cap index falling 3.5 to 2,285.8.

Firm Far Eastern markets and a strong New York display during London hours helped the stock market recovery.

Cable & Wireless missed the message. The shares fell 11p to 733p after CSFB downgraded its profit forecast because of the group's exposure to the struggling Hong Kong economy. The investment house cut current year's estimates by pounds 90m to pounds 1.6bn and next year's by pounds 90m to pounds 1.86bn.

HSBC, the banking group, also failed to join the rally. It was ruffled as a block of shares came on offer, falling 7p to 1,367p.

Another financial takeover bid helped sentiment. Just weeks after long- time bid target Willis Corroon collected a US strike, the Sedgwick insurance broking group has received what the market regards as a very full offer from Marsh & McLennan, the US giant. Aon, another big US group, could, runs the feeling, be tempted to try to counter the US bid for Willis. Sedgwick shot ahead 70.5p to 213p and Willis, which has agreed a deal with Kohlberg Kravis Roberts, the break-up specialist, firmed 2.5p to 213p.

Abbey National improved 19p (after 42p) to 1,117p following positive comments from Schroders. And Schroders voting shares jumped 105p to 1,540p as takeover hopes persisted.

The Sedgwick deal drew attention to other financials, with Royal & SunAlliance gaining 27p to 558p.

BAT Industries rose 20.5p to 647.5p. It is expected that dealings in the demerged, separately listed British American Tobacco and Allied Zurich financial group will start on 8 September.

Cairn Energy slumped 30p to 130.5p, lowest for more than three years, following disappointing figures and the failure of much progress to be made in Bangladesh.

Flying Flowers wilted 78.5p to 148p after producing another profits warning. The shares were almost 600p two months ago. Dawson International, the clothing group, fell 5.5p to 16p after failing to find a bidder. The shares hit 211p in 1994.

Railtrack was back on the right lines with a 55p advance to 1,457p following an investment presentation. Albright & Wilson, the chemical group, was back in the takeover spotlight. A few weeks ago the shares enjoyed a giddy run, but the speculators found they had lit on the wrong target. The shares rose 10.5p to 124.5p as the boys in dark glasses gave them another whirl.

Phytopharm, the drugs group seeking treatments from plants, climbed a 15p to 144.5p following its deal with Pfizer, the US giant, and a forecast that the shares will hit 200p from Panmure Gordon.

Selfridges, the department store hived off from Sears, firmed 3.5p to 248.5p as British Land lifted its presumably hostile stake to 5.75 per cent, buying a further 3.64 million shares.

Barratt Developments, the housebuilder, again hit a brick wall, slipping 1p to 189.5p. Figures are due towards the end of next month. Travis Perkins, the builders' merchant, lost 29p to 394p on a stock overhang.

Torotrak, the transmissions group, continued to seek a level, falling another 7.5p to 177.5p. Vymura, the wall coverings group where tycoon Trevor Hemmings is stake-building, hardened 21p to 145p.

Emerald Energy was one of the heaviest traded shares, with Seaq putting volume at 12.7 million. The price shaded 0.5p to 7p as rumours continued about the results of its Colombian drilling, which should have been completed last week.

SEAQ VOLUME: 703.7m

SEAQ TRADES: 56,540

GILTS INDEX: n/a

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