Market Report: Talk of Sainsbury board reshuffle sets tills a- ringing

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The Independent Online
DEALERS WERE filling their trolleys with Sainsbury yesterday as a wild rumour and a broker's push set the supermarket's tills ringing.

The double-whammy left the stock 14.5p higher to 389.5p - one the day's best blue-chips. Volume passed the 11m mark amid heavy buying from a large marketmaker, rumoured to be Warburg Dillon Read.

According to dealers, some large shareholders are becoming increasingly frustrated at the company's sales and share price performance and are quietly plotting a boardroom reshuffle. Supporters of the story said that the investors are so fed up with the situation that they could soon ask for the head of chief executive Dino Adriano.

The brave traders did not specify which shareholder were behind the revolt and stated merely that the Sainsbury's register includes some big names, such as Legal & General, Prudential and the activist PDFM.

The story is not impossible. Over the past twelve months the former leader of the supermarket sector has been in a state of permanent crisis as the downward trend in sales was exacerbated by a failed advertising campaign fronted by John Cleese.

Mr Adriano is restructuring the group and has recently launched a new corporate image and a breed of convenience stores to rival Tesco's Metro. He has promised that the next few months will see a return to positive like-for-like sales but the feeling is that if he does not deliver by the beginning of next year, or even earlier, he could be on his way.

Less imaginative traders rehashed stories of an imminent sale of the Sainsbury's family chunky stake in the business. The more obvious reason for Sainsbury's jump was a bullish note from Deutsche Bank. The highly- regarded broker said that Sainsbury is undervalued at present levels. The note added that, assuming that Mr Adriano can slash pounds 140m of costs over the next two or three years, the shares are "very attractive".

In typical supermarket fashion, Deutsche came up with a "two-for-one" and also sang the praises of arch-rival Tesco. The UK's largest food retailer gobbled up a 7.5p rise to 172.25p after the broker named it as is its favourite stock among UK and European supermarkets. The Sainsbury and Tesco combo was given added impetus by revived whispers that either could merge with struggling Marks & Spencer, which was up 2.25p to 376.75p.

Sector peer Safeway was excited by rumours that its top managers had flown to Scotland with their Kingfisher counterparts to talk merger. Unfortunately, the whisper was not enough to prop up Safeway, which fell 7.25p to 228.75p. Kingfisher shed 15.5p to 700p after confirming its Polish expansion.

Remaining blue-chips were nervous about interest rates and succumbed to selling pressure despite a three-figure rally in the Dow. The FTSE 100 closed 15.2 lower to 6235.4 amid worries about today's rate decision by the Bank of England. Most experts expect a no change outcome but a feeling of insecurity is creeping into the market. Tomorrow's all-important US employment numbers are also a big drag as dealers know that strong figures will encourage the Fed to increase rates. The undercard, usually less interest in overseas affairs, decoupled from the leaders. The FTSE 250 ended 22 higher at 6014.4, while the Small Cap was 9.5 better at 2729.4.

The gas-to-car-repair group Centrica led the blue-chip pack, flaring 6.5p higher to 148.25p on whispers of an imminent upgrade by a heavyweight analyst following the recent acquisition of the AA. There are also vague rumours of a takeover from an overseas player, such as Germany's RWE.

The chemical giant ICI was excited by the mega-mergers between US peers Dow and Union Carbide. The stock rose 9p to 752p amid hopes that the consolidation wave will now engulf debt-laden ICI. Smaller rival Laporte went the other way, plummeting 35p to 749p as the market reacted badly to its decision to scrap the dividend and offer B shares instead. Talk of a strike from Swiss rival Clariant is still there.

Unilever jumped 20.5p to 618p as dealers whispered that tomorrow's results will be good. BT was the day's worst blue-chip, plunging 46p to 986p on three pieces of bad news. First, the telecom group is still reeling from disappointing results. It is also set to be hit by a new high-speed Internet link to be unveiled by Telewest, up 2p to 270p, at today's results. And to cap it all, Vodafone AirTouch, down 45p to 1238p after ending a US joint venture, is rumoured to be looking at mobile phone price war which could hurt BT Cellnet.

The rest of the sector was also sold off amid fears that valuations are stretched. COLT shed 42p to 1406p, while Energis dropped 33p to 1639p. Engineers continued to star in the midcap. Premier Farnell surged 14p to 269p after Warburg said it is worth 300p. IMI spiked 15.5p to 285.5p ahead of results and amid vague talk of a strike from TI, down 2.25p at 487.5p.

Boiler maker Hepworth steamed 20.5p up to 206.5p after good results, while positive interims pushed recruiter Select Appointments, 56p better at 887.5p.

Insurer LIMIT jumped 6p to 153.5p after buying back 500,000 shares at 147p. Australian rival QBE confirmed that it was the mystery bidder recently rebuffed by the UK group. Trafficmaster motored 38p ahead to a best- ever 587.5p, on hopes of new contracts for its traffic control kit.

The Internet wonderstock Freeserve slumped 28.5p to 211p on profit-taking and weakness among its American hi-tech peers.

AIM-listed biotech group SR Pharma soared 41.5p to a yearly record of 380p. A broker is rumoured to have prepared a note with a value of 1040p on the company. Larger rival SkyePharma firmed 1.5p to 56.25p as the deal with a bug drug group nears.

Oil driller Aminex was unchanged at 26p despite talk of positive news from its US fields, while food maker Perkins Foods digested a 1.5p rise to 105p amid vague talk of a bid.

Builders' merchant Tudor cemented a 25p rise to 105.5p after agreeing a 108p-per-share offer from rival Meyer, up 3p at 458p.

SEAQ VOLUMES: 969.6m

SEAQ TRADES: 74,509

GILTS INDEX: 106.75 +0.92

SHARES in Aortech, the maker of heart monitoring devices soared another79.5p to 363.5p yesterday as rumours of a bullish note grew louder. The broker, believed to be the Nomura, is supposed to set a target of 900p and predict that Aortech could win about 50 per cent of the $200m- a-year market for heart monitors.

More cynical dealers believe that Aortech could use the incredible rise in the share price to raise money through a rights issue.

KEEP AN EYE on Videologic, up 6p to 71p. The market is awash with rumours that the micro-chip group is on the verge of some major contract wins. Videologic has linked up with Sega to supply the technical kit for its Dreamcast game station and further deals with the Japanese group are possible. Some dealers have dubbed the group "the new ARM Holdings" and believe that, like ARM, Videologic shares have a lot of upside.

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