Market Report: The renaissance of intriguing Asda continues

ASDA, the once-ailing supermarket chain, is intriguing the stock market. The shares fell to a 22.5p low in early August, but have since staged a remarkable recovery. They closed 2.5p higher at 36.5p yesterday with US buying helping the advance.

The odd takeover rumour continues to ruffle the shares. But the momentum behind the resurgence is largely based on hopes that the new chief executive, Archie Norman, ex-Kingfisher, is turning the group round far more quickly than most observers thought possible.

His latest deal, the sale of two development sites to Argyll Group and a store to Sainsbury, did not gather unanimous approval. Some felt it was a sign Asda was prepared to sell the family silver.

But the lowering of the group's debt mountain, probably cut to below pounds 550m by the sales and the disposal of its 25 per cent stake in the MFI furniture chain, has turned out to be the greater influence and shares, already ignoring most of the stock market gyrations, have continued their recovery. Their ability to hold above last year's 35p-a-share rescue rights issue is impressive. The cash call raised pounds 357m and probably ensured Asda's survival.

Last year, kitchen-sink accounting helped to produce a pounds 364.8m loss.

In the current year there are hopes profits will top pounds 100m, perhaps reaching pounds 110m.

The group has felt the pinch of competition from its bigger, more successful rivals. But the squeeze should be easing and Asda must feel that many of the smaller independents look vulnerable, and Isosceles could be a soft target.

The problems the smaller supermarket groups face was underlined by a cautious statement from the revitalised Budgens group, down 2p at 36p. Analysts seem prepared to cut their forecasts by 20 per cent to pounds 6.5m.

The rest of the stock market continued to claw back ground lost in Monday's collapse. The FT-SE share index closed 28.7 points higher at 2,517.1. Hopes of an interest rate cut to relieve the gloom at the Tory Party conference continued to influence sentiment. Sterling's more steady performance was another factor.

But general trading remained subdued with two placings inflating volume to 545 million shares.

Lyonnaise Des Eaux Dumez placed with institutions its 8.99 per cent shareholding in Anglian Water through Cazenove and SG Warburg at 415p. The shares fell 13p to 417p.

General Accident, the insurance group, rose 5p to 510p as Hoare Govett placed with institutions 13.5 million shares at 488p. The cash goes towards the takeover of Prudential Corporation's Canadian general insurance business. The Pru rose 10p to 269p.

Unilever, the Anglo-Dutch food group that has out-performed, came in for the inevitable profit-taking. Smith New Court apparently drew attention to the shares' strength and suggested at least some profits should be locked in. The price fell 21p to 1,042p. Takeover talk lifted Unigate 11p to 251p.

Imperial Chemical Industries was another to ignore the market's strength. The shares fell 14.5p to 1,060.5p, largely on US selling. Some wondered whether Goldman Sachs dumped the residue of the stake it acquired from Hanson.

The usual raft of downgradings took their toll. Shell, strong recently on a succession of inspirational comments, dropped 9p to 522p as County NatWest adopted a more cautious stance. GKN, down 10p to 259p, was hit by a Warburg downgrading.

But buy recommendations were also evident. Henderson Crosthwaite pushed Vodafone Group 2p higher to 336p by upgrading its profit estimate by pounds 10m to pounds 310m for this year and by pounds 10m to pounds 360m for next. The group is, said Henderson, enjoying 'buoyant' subscriber growth which could make its forecasts too cautious. Vickers held at 91p as Carr Kitcat & Aitken suggested profits of pounds 30m next year.

Associated British Ports, up 10p to 277p, and Glaxo Holdings, 7p higher at 764p, drew support from investment meetings in Scotland.

Irish packaging group Jefferson Smurfit dropped 16p to 214p. Two directors sold 8 million shares. BM Group, the construction equipment business, was little changed at 69p as 4.8 million shares went through.

Owners Abroad dived 6.5p to 70.5p following its 'tentative' takeover approach. Airtours, thought by some to be a possible bidder, lost 7p to 239p.

Pottery group Arthur Wood held at 100p as the mysterious Panamanian company, Redbridge Holdings, nudged its stake to 16 per cent. Ramco Oil continued to respond to its Caspian Sea exploration deal, improving 4p to 76p. Haemocell, on its US clearance, rose another 9p to 185p.

Shares continued to recover yesterday. The FT-SE share index ended 28.7 points higher at 2,517.1. At one time the gain was 38.5. The FT 30-share index rose 33.1 to 1,847.3. Turnover was 545 million shares with 18,572 bargains. Government stocks scored gains of up to pounds 1/2 .

Invergordon Distillers, the Scotch whisky group, rose 5p to 309p yesterday. At the end of this month American Brands, which made an unsuccessful takeover assault last year, is free to bid again. It holds 41 per cent of the Invergordon capital, paying around 275p a share. AB is likely to mount another attack, offering 325p a share, perhaps as much as 350p.

Park Food Group, which makes much of its profit by selling Christmas hampers, has won a profits upgrade from its stockbroker, Smith New Court. Analyst Alastair Irvine has put pounds 1m on this year's estimate to pounds 9m and is looking for pounds 10m next year. He expects the dividend to be raised to 4p a share with 4.5p next year. The shares edged ahead 2p to 154p.

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