Market Report: Rumours of a rights issue take their toll on T&N

WORRIES about a possible pounds 200m-plus cash call on investors depressed shares in T&N for the whole of yesterday's session.

The maker of automotive components is due to announce interim results tomorrow, which analysts hope will produce a further recovery in taxable profits from pounds 39.4m to about pounds 50m.

There were two angles to the rights issue rumours. One was that T&N would make a straight cash call to cut debts, which were last stated as being more than 60 per cent of shareholder funds.

Analysts said there was a need for T&N to address its gearing, given its commitment to plough pounds 120m a year into its capital investment programme.

'There is always the danger of some sort of fund-raising from T&N,' said Sandy Morris, an analyst at NatWest Markets.

The other angle was that the company was preparing another acquisitive foray into Germany following last year's pounds 114m purchase of Goetze, a maker of piston rings.

Speculation about the target homed in on Kolbenschmidt, the maker of pistons which is 47 per cent owned by the financially strapped Metallgesellschaft group.

'The acquisition would make strategic sense, but it could cost up to pounds 400m if Kolbenschmidt's debts are included,' an analyst said. Investors have become accustomed to T&N wheeling out cash calls and issuing paper to make acquisitions. The number of shares in issue has almost doubled since 1989.

Yesterday's share price performance - down 4p to 242p - went against the grain for second-liners, which were in demand and fared much better than the constituents of the FT-SE 100 share index.

Nearly 60 per cent of the day's volume of 550 million shares was turned over outside the ranks of the FT-SE 100, which failed to hold on to early gains and finished 15.5 points down at 3,249.6. In contrast, the FT-SE 250 recorded a gain of 6.8 to 3,813.8.

The leaders were pulled back by profit-taking and a lack of volume on the futures market. The September FT-SE 100 contract fell 23 points to 3,263, amid trading volume of only 8,000 lots.

One dealer on Liffe said: 'The positive effects of Wall Street's recent rally have faded.' The Dow Jones, up almost 70 points in the previous two trading days, drifted slightly into negative territory soon after the Street opened.

Fallers in the FT-SE 100 outnumbered gainers by three to one. And advances, apart from Southern Electricity, were restricted to a couple of pence.

Southern, up 21p to 834p, was buoyed by hopes of a share buy- back after last week's move by Seeboard, ahead 4p to 452p, to buy three million of its shares at between 425p and 439p.

Analysts at Kleinwort Benson were also said to be making positive noises about the sector. East Midlands Electricity rose 15p to 784p as did Northern to 858p, and Midlands put on 17p to 840p.

Unilever came in for some rough treatment and was marked down 23p to pounds 11.46p.

Damage was caused by weekend press reports that the Consumers Association was preparing a hard-hitting report on Persil Power washing powder.

Procter & Gamble, maker of Ariel and the main rival to Unilever, has previously claimed that Persil Power damages clothes.

The independent Consumers Association, which publishes Which? magazine, yesterday confirmed it had started testing Persil Power and other soap powders last month. However, it said the report would not be available until late October at the earliest and possibly not until Christmas.

Most of yesterday's share price reaction lay at the hands of nervous market-makers. Fewer than 2 million Unilever shares were traded.

With many dealers still on holiday, Smith New Court's leisure analysts cast a favourable eye over Airtours - the second- largest tour operator in the UK.

The shares closed 4p better at 459p, with Smith's saying the rating - a price earnings multiple of 10.4 - was too low and 'seriously under-rates' Airtours in a growing and stable sector.

Elsewhere in leisure, Manchester United continued to get the better of Tottenham Hotspur. After netting three points from the London club at the weekend, United firmed 4p to 669p while Tottenham dropped 6p to 125p.

Graduate Appointments, the recruitment agency formerly owned by Josephine Hart, the wife of Maurice Saatchi, enjoyed good first-day dealings under the matched bargain 4.2 rule. They started at 17.5p, a 40 per cent premium to the issue price.

The equity market split into two distinct halves yesterday, with investors favouring second-line stocks at the expense of blue chips. A 15.5-point fall to 3,249.6 in the FT-SE 100 index contrasted with a gain of 6.8 to 3,813.8 for the FT-SE 250.

Domnick Hunter shares were lively, pushed up 14p to 250p by rumours of an acquisition announcement with today's maiden half-year results. The maker of filtration products floated on the market in March at 200p. There was also talk that the interims would be much better than the pounds 2.5m pre-tax expected by analysts, who are looking for pounds 5.4m for the whole year.

Hunterprint caused some disappointment despite confirming recent rumours that Quebecor Printing company in Canada was considering a takeover bid. Long-suffering shareholders who were expecting to cut their losses may, if a bid is made, have to contemplate selling out at below Friday's closing price of 9p. The price fell 1.5p to 7.5p yesterday.