Market report: Share buy-back plans leave the City awash with cash

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The Independent Online
The stock market is in danger of becoming awash with money. Share buy-backs and the tendency for predators to toss around hard currency rather than shares is pumping cash into the system at an increasing rate and encouraging blue chips to romp ahead.

As if celebrating Bass' decision to reward its shareholders, Footsie advanced 81.6 points to 5,203.4.

After selling its tenanted pubs the brewing group declared its intention of returning pounds 850m through the increasingly popular "B" shares route, which does not disadvantage small shareholders.

Others sprinkling cash around include Diageo, the international drinks cocktail which comes to market today, and Reuters, said to be keen to buy the US Primark information group. The largesse of the three tops pounds 5bn.

With cost savings assuming increasing importance in current corporate thinking and companies happy to assume a much higher debt ratio, the tide of share buy-backs, which has flowed strongly in the past few years, is bound to become even more powerful.

Takeovers are also contributing to the embarrassment of riches. Merrill Lynch's move for Mercury Asset Management represents another pounds 3.1bn cash injection. Other cash bids include the Swiss-based Richemont's pounds 1bn offer for the outstanding 30 per cent of luxury goods group Vendome and the US Hercules pounds 1bn strike at the Allied Colloids chemicals group.

With the coffers of many domestic institutions over flowing and foreign investors regarding London as undervalued the wall of money argument is becoming difficult to counter.

Once again, the buying interest is being concentrated on blue chips. Supporting indices had the invidious experience of failing to register advances.

Abbey National led the Footsie charge, soaring 90p to 1,147p. The shares had a typically order-driven volatile close, moving from 89p to 71p before selling for a 90p gain. Other financials were strong. Bank of Scotland rose 27p to 584p and National Westminster Bank 46p to 1,045p.

Alliance & Leicester jumped 37.5p to 831p, helped by a suggested SBC Warburg switch from Northern Rock, off 4.5p off at 559.5p. Halifax, where stories of returning cash to shareholders are going the rounds, put on 24.5p to 770p.

Drugs were also in form. Lehman Brothers produced a range of share targets. SmithKline Beecham moved towards the Lehman's expected 700p, gaining 23p to 651; Zeneca, given a 2,550p objective, put on 45p to 2,028p. Talk of a US bid was another influence in the SB advance.

Nycomed Amersham celebrated today's arrival in Footsie with a 125p gain to 2,270p. The Anglo-Norwegian healthcare group had, at one time, looked a candidate for selection at last week's Footsie steering committee meeting. But a sudden loss of form sabotaged its chances. A modest revival since the meeting means it becomes a Footsie constituent before the three chosen last week, which will not become members of the exclusive club until Monday.

NA's inclusion follows the Grand Metropolitan and Guinness roll up into Diageo.

Burton, holding investment presentations on its Debenhams demerger, rose 2.5p to 143.5p and Johnson Matthey firmed 2p to 526.5p as Warburg hosted a presentation.

Shield Diagnostic added 17.5p to 757.5p on talk Abbott Laboratories is about to buy a stake or even bid.

Profit warnings took their toll. Danka Business Systems, the seemingly unstoppable office equipment group, crashed 292.5p to 217.5p; Universal Salvage fell 25p to 80p and Alumasc 63.5p to 242.5p.

Eidos, the computer games maker, was ruffled by a director's disposals. Geoffrey Brown unloaded 3.4 per cent, most of his stake, at 700p, raising pounds 4.2m. The shares fell 22.5p to 717.5p

British Aerospace slipped 20p to 1,731p, scant reward for NatWest Securities, which hoisted a pounds 26 target price.

Asda, results tomorrow, got the NatWest chop ahead of tomorrow's interim figures. NatWest is looking for pounds 180m, up 10 per cent. But, as if supporting the Safeway takeover theory, it says Asda "lacks scale and needs to expand its penetration of the UK grocery store market". The shares eased 1p to 174p.