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Market Report: Uncertainty over Tesco as Sainsbury romps ahead

TESCO was the subject of a two-way pull as investment houses clashed over prospects for its shares.

Goldman Sachs, the big American group, emerged as a keen supporter, suggesting the price should go to 665p. But Henderson Crosthwaite adopted a much more cautious tone, putting the shares on its sell list.

It is negative about superstore chains in general and Tesco in particular following its Far East adventure, a pounds 111m controlling stake in Lotus, Thailand's leading hypermarket chain.

Tesco shares hit a 603p peak in March. They have drifted since then and fell a further 5.5p to 524p, giving Henderson the satisfaction of at least achieving a successful short-term call.

J Sainsbury, however, was the best performing blue chip, gaining 34.5p to 515.5p following the surprise sale of its controlling stake in the American Giant Food operation for $600m.

The rest of the stock market recovered some of Monday's fall, helped along by a firm New York, a feeling that US interest rates will remain unchanged and a more settled display by Far Eastern markets. The crop of corporate results were generally satisfactory, free from any shocks.

Footsie climbed 51.6 points to 5,877.8. Mid and small caps, however, made much of the running. Mid caps were the subject of busy two-way trading, with the index finishing a little firmer at 5,795.2, up 2.7. The small caps, however, enjoyed another strong session and the index hit another peak, up 9 at 2,760.5.

Next, the retailer, expressed relief that its yearly shareholders' meeting did not produce more gloomy tidings, gaining 33.5p to 521p. And Allied UniChem, the chemist chain, bounded 22.5p to 475p following the acquisition of a 36 per cent stake in an Italian pharmaceutical wholesaler.

Enterprise Oil, indulging in a US investment roadshow, fell 8p to 580p; Rolls-Royce lost 3.75p to 284p ahead of its US presentations and Billiton, showing analysts its South African interests, fell 3.5p to 158.5p.

Grampian, the Edinburgh Woollen Mills group, held at 146p after meeting analysts; Cobham, the aerospace and defence group, put on 13p to 1,160p following the Henderson Crosthwaite investment dinner.

Takeovers did more to help sentiment. Engineer TI's agreed pounds 267m strike at EIS sent the target's shares soaring 154p to 500p. TI fell 16p to 587p.

Tunstall, an electrical group, gained 30p to 159p as the management and friends pushed in a 160p cash offer.

Vosper Thorneycroft, the shipbuilder, reached a 12-month high with a 50p gain to 900p. Once again talk of bid action is in the air. A Continental group is said to be circling.

Limelight, the struggling bathrooms and kitchens group, edged ahead 4p to 41p. Bid speculation is behind the rise. There is even talk that founder Stephen Boler may be persuaded to bid, returning the company to private status. The shares arrived at 175p in October 1996 and touched 200p before crashing as profits became losses.

Chesterfield Properties fell 30p to 612.5p after declaring takeover talks, thought to be with MEPC, had ended because the two sides could not agree on a price. At one time GE Capital, the big financial group controlled by General Electric of the US, was interested. It pulled out, leaving the way clear for MEPC.

Telemetrix, the electronic group, charged 9p higher to 56.5p following a signalled offer for its 57 per cent owned US offshoot, GTI Corporation. The bid would value GTI at $33.8m.

Financials were firm. Lloyds TSB was helped by Morgan Stanley support, improving 30.5p to 864p. Others to shake off recent uncertainty included Halifax, up 32p at 824p and Bank of Scotland, 26p higher at 700p. Even Northern Rock managed a 9.5p advance to 558p.

Cable & Wireless was again buzzing as talk of takeover action continued to circulate. The shares rose 17p to 721p. A modest rally by Hong Kong shares helped but buyers see the group as a likely target in the battle to establish domination in the world telephone industry.

Securicor put on a further 6.5p to 437.5p. Here the story is the sale of its stake in the Cellnet mobile phone group to BT, already the major shareholder. BT, it is thought, is anxious to get full control of Cellnet and has obtained tentative government approval. Securicor would probably return some of the cash to shareholders with the rest earmarked for its security business.

Delancy Estates' signalled reverse takeover involves James Ritblat, son of British Land chief John Ritblat. He is negotiating to pump assets into the group in exchange for shares priced at around 100p. Delancy shares fell 8.5p to 101p.