Market Report: Rolls takes a hammering as forecasts are sliced

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The Independent Online
LESS THAN a month after raising pounds 307m from shareholders, Rolls-Royce is coming under pressure as profit forecasts are pulled back.

The shares were in a spin, falling 4.5p to 147.5p, with Barclays de Zoete Wedd sharply reducing its expectations. Others are expected to follow.

Rolls offered shareholders new shares at 130p on a one-for-four ratio. The rights attracted an 87 per cent take-up.

Last year the aero-engine group suffered a pounds 184m loss. Hopes were high that profits would recover strongly this year, with take-off occurring next year.

But BZW suggests expectations are too high. It cut this year's estimate from pounds 85m to pounds 70m and next year's from pounds 118m to pounds 85m, and put a 'sell' sign over the shares.

The securities house fears sales will remain in the doldrums as the aviation industry continues to struggle and it could be some time before the important spares business picks up. More restructuring costs are also a possibility.

BZW rates British Aerospace, still struggling to conclude a deal over business jets with Taiwan, a buy. The shares rose 3p to 409p.

The rest of the stock market bowed to the seemingly inevitable - acknowledging the anniversary of the 1987 crash with a token eight-point decline to 3,129.6. Trading was often subdued, with many investors content to dwell on the sidelines.

The flow of overseas money was reduced to more of a trickle, with many US investors prepared to pause for breath. But with lower interest-rate hopes still flickering and many convinced the economic revival is still on course, the undertone remained firm.

Zeneca was one to escape the US indifference. The drugs group jumped 24p to 777p, a new peak, on transatlantic buying. Other drug shares were firm, with the US investment house Wertheim Schroder turning bullish on the sector. SmithKline Beecham's results lifted the shares 9p to 414p.

BAT Industries fell 10p to 479p, reflecting the poor results from Philip Morris, the US giant that pulled into question the value of brands by cutting the price of its top-selling Marlboro cigarettes in April.

The resultant price war has hit BAT's important US offshoot, Brown & Williamson.

Telephone shares were active, with a warrant basket on the sector creating interest. BT, helped by its entertainment plans and talk of pounds 2bn video revenue, rose 5p to a 465p peak, with the partly-paid up 6p at 215.5p.

Virtuality made the expected heady debut, touching 308p and closing at 289p. The placing was at 170p. Division rose 1p to 98p.

By comparison, Fleming Chinese Investment Trust made a subdued start. Issued at 100p, the shares traded down to 93.5p. But, in effect, there was a premium with the warrants, one was given with every five shares, reaching 54p.

Bowater, the packaging group, dipped 12p to 440p on a profit downgrading, thought to be by UBS.

Banks had a dull session. Worries that margins are being squeezed in the US lowered Barclays and National Westminster. HSBC had the additional discomfort of the pounds 172m British & Commonwealth award.

Takare, the nursing homes group, shaded to 233p. An agency cross at 222.5p attracted attention.

Anglo Eastern Plantations continued to move beyond the 68p offer from Genton International, a Hong Kong group. Chillington Corporation has accepted the bid for its 48.08 per cent. The shares rose 7p to 84p on expectations that AEP is to become the Hong Kong group's quoted vehicle.

Greycoat edged ahead to 32.25p as a Singapore-based consortium added to the confusion by emerging with a 4.46 per cent shareholding. The activity at the stricken property group has been intense since a rescue offer from Postel was voted down by shareholders.

US interests are active and there is talk of full bids and new rescue schemes. Greycoat is expected to provide details later this week.

The FT-SE 100 share index fell eight points to 3,129.6 but the

FT-SE 250 index lost only 0.1 of a point to 3,486.8. Turnover was 658.2 million shares with 32,837 bargains. The account ends on 29 October with settlement on 8 November.

Developments may be afoot at Bass, struggling like the rest of the beerage in a depressed domestic market. Word is that Britain's biggest brewer is planning an overseas splash. There is talk of a Continental brewing venture although some speculate about moves in the US, where the Bass hotel offshoot, Holiday Inn, is based. The shares were little changed at 476p.

Betterware, the direct selling group, is taking on the bears who have driven its shares down to 183p. The price rebounded to 201p in brisk trading yesterday when it became known the group had advanced its interim profit statement to next week. Betterware's action suggests the figures could be better than expected. Earlier this year the shares reached 278p.