Market Report: TSB shares feel heat of hot tip from Australia

THE BANKING group TSB is once again intriguing the stock market.

Rumours have circulated for some time that a big deal is being put together. The takeover of a building society has been the popular guess but yesterday the suspicion was growing that TSB could feel the heat of bid action before it was able to get its society offer approved.

National Australian Bank was the name in the frame and TSB shares rose 5.5p to 233p, highest since March, in busy trading.

The Australian group would, even the most fervent supporters of the story admitted, be hard pressed to mount a takeover which would cost more than pounds 4bn. But NAB in the past has displayed a weakness for British banks and a willingness to pay fancy prices.

It already owns Northern Bank and Clydesdale Bank as well as the old-established, highly individualistic Yorkshire Bank. At the time Australians were on a British buying spree, they paid what was regarded as an over-the- top pounds 976.5m for Yorkshire. Pressed about its valuation, it described it as 'manageable'.

TSB is no stranger to takeover speculation. A host of Continental groups have been mentioned and, before the world recession took its toll, various Far Eastern, particularly Japanese, groups were linked with the bank.

Lloyds Bank, which has decided to take the building society route, was another said to be interested in what used to be called the Trustee Savings Bank.

It was one of the banks to sell Yorkshire to the Australians. Lloyds was the second-biggest shareholder with 32 per cent and National Westminster, with 40 per cent, was the largest.

The market has suspected that TSB's involvement with the troublesome Hill Samuel merchant banking operation deterred many bidders. But Hill Samuel is now back in profit and TSB chairman Sir Nicholas Goodison was enthusiastic about its prospects in his yearly report to shareholders.

Other banks were firm, with the Irish contingent continuing to reap the 'peace' dividend.

The rest of the market had, considering New York's closure, a fairly busy session with most blue chips in fine fettle.

The latest round of Whitehall statistics reawakened hopes that tomorrow's meeting between the Chancellor and Governor of the Bank of England would not lead to an early interest rate increase.

Last week, the feeling grew that they may feel forced into an early move.

But the weight of opinion, often an unreliable guide to the course of events, was that an increase would not be felt necessary. Indeed Yamaichi, the Japanese investment house, thought any upward change would not be required until early next year.

Trading volume was swollen by the expected WPP sale. More than 120 million shares were placed by S G Warburg at 115p as the banks, which came to the rescue of the advertising group in its dark days by converting debt into equity, unloaded most of their shares. The WPP price was lifted 3p to 123p.

Reports that the Office of Fair Trading has launched a preliminary investigation into the cost of over-the-counter medicines ruffled Boots and Lloyds Chemists. Boots shaded 2.5p to 549p and Lloyds 2.5p to 321.5p.

Thorn EMI edged ahead 2p to 1,015p. Bruce Jones, at Smith New Court, regards the shares as a buy up to 1,100p. Tesco, as the William Low takeover was put to bed, jumped 6.5p to 254p.

T&N, the motor components group, reversed 6p to 231p with rights issue rumours resurfacing. A cash call had been expected with last week's figures.

Lonrho was lowered 3p to 139p on the growing acrimony between its chief executives, Tiny Rowland and Dieter Bock.

Tadpole Technology dipped 2p to 385p, although there is talk of a big US defence contract being announced in the next few weeks.

Rodime, a play on US litigation, rose 3.5p to 16.5p. The shares have more than doubled in two trading days. They touched 49p in January when speculation swirled that a favourable settlement was imminent.

Arcadian International, the developing golf club and hotel group, held at 40p. Charterhouse Tilney is keen on the shares, forecasting profits of pounds 1.1m this year and pounds 2.6m next. It suggests that net asset value will be 88p by 1997.

Enviromed, the acquisitive healthcare group, rose 5p to 122p. It is planning a pounds 7m cash-and- shares purchase of an unquoted dental group.

The once-ailing UK Land property group spurted 7p to 50p as directors picked up shares from institutions that supported the group's reconstruction last year. Chairman Colin Tett and director Graham Barclay paid 40p a share to lift their respective shareholdings by 9.76 per cent and 11.6 per cent. Mr Tett now has 20.5 per cent and Mr Barclay 21.88 per cent.

Hobson, expected to be a star of the food sector, continues to disappoint. The shares stuck at 21.5p against the 27p placing when a big slice of the Co-op's food business was acquired. But there is talk of a profit upgrading by the company's stockbroker, Panmure Gordon, and that the long-awaited asset sales, which could produce pounds 30m, will be completed this month.