Market Report:Sky faces gathering clouds
Thursday 05 January 1995
Since last month's flotation it is estimated that nearly 200 million shares have been traded with, it is felt, Goldman Sachs, the backing securities house, being forced to take much of the stock on its books.
The shares were sold off at 256p and quickly moved to 268p before settling near the issue price. They closed at 255.5p, down 1p, with Seaq putting the volume at almost 7 million shares.
A number of securities houses are unenthusiastic about BSkyB's immediate stock market prospects. The stockbroker Henderson Crosthwaite is one; another is thought to be Robert Fleming, which is rumoured to be preparing a sell recommendation.
Louise Barton at Henderson predicts: "Without the market support the share price will decline to closer to the 200p level."
She believes at 256p, pricing the group at £4.4bn, BSkyB was overvalued. Her valuation is nearer £2.6bn. At 200p the group would be priced at £3.4bn.
Ms Barton regards the shares as a sell. She believes BSkyB to be a successful company but thinks it will be unable to grow at the rate implied by the £4.4bn price tag.
Profits last year were £63m. She looks for £194m this year, rising to £473m by the end of the decade. Like other observers she worries about increased competition.
The television group represents one of the most astonishing turnarounds in British corporate history. Only a few years ago it was teetering on the brink of disaster. Then it took over its weak rival BSB and with the benefit of cost-cutting and price increases, aggressive marketing and the deep pockets of the Rupert Murdoch empire, staged a dramatic comeback that led to the stock market flotation, allowing the £4.4bn price tag.
TeleWest, the cable group that was also the subject of a so-called stabilisation operation, was floated at 282p in November. Once its sponsor Kleinwort Benson gave up its support the shares fell back. They are now 268p.
The rest of the market had another lacklustre session, But at least there was some decisive movement, albeit downwards. The FT-SE 100 index index ended 14.1 points down at 3,051.6 with a sell-off of the hitherto high-flying utilities causing much of the unrest.
Even a firm New York display failed to make any impression. But although dismissed yesterday, it could set a more confident tone for today's trading.
Profit-taking eliminated the spark of the electricities. With worries about a Whitehall inquiry into the Trafalgar House bid for Northern Electric surfacing, the sector was in ragged retreat, dragging water lower in sympathy.
Eurotunnel, however, was again in demand. The success of its Eurostar train service and growing use of the Channel Tunnel continue to pull in buyers. The shares rose 15p to 312p. At the start of last month they were 250p. But Eurotunnel's new-found stre n gth produced a sinking feeling at P&O, down 14p at 596p.
Vodafone, the mobile telephone group, came under pressure, falling 9p to 199p in busy trading. It announced record subscription figures on Tuesday but the market is fearful of the growing competition from Cellnet, controlled by BT.
The upbeat trading statement from Next came too late to influence its shares, down 2.5p at 255.5p. But earlier TJ Hughes, a discount department store chain operating in the North-west, had made encouraging comments on Christmas trading, lifting the shares 2p to 82p. Following the statement its managing director, Eric Hodges, sold 100,000 shares at 81p. He is due to retire this month and the sale had been planned since January last year.
Iceland, the frozen food group, was also thought to have experienced cheerful Christmas trading, with the shares 1p firmer at 153p. Saatchi & Saatchi fell 8p to 138p as the possible ramifications of Maurice Saatchi's departure caused some unease. Ladbro k e slipped 3p to 166p on vague worries it was trying to mount a bid for the Hilton Hotels chain of the US.
Wellcome, the drugs group, had an uneven session, with some investors worried it could be running into difficulties with the US Food and Drug Administration over its herpes drug. However, sources close to the company said the market had overreacted. Eve
n so, the shares were down 14p, at 686p.
Scotia, another drugs group, firmed 9p to 283p on indications it was planning investment presentations and could be close to announcing a significant deal.
MR Data Management continued to respond to takeover rumours, up 7p to 125p. Virtuality, the computer games group, moved ahead another 8p to 244p with, it seemed, a determined buyer continuing to mop up shares.
Bluebird, the toys group, eased 6p to 220p, ruffled by a disappointing sales statement from US toy giant Toys `R' Us.
Talk that the US investment group GE Capital plans a big European acquisition produced a modest uplift for some fund managers.
After SG Warburg's brief and ill-starred flirtation with Morgan Stanley the market has turned its attention to Hambros. The merchant bank has attracted some small but persistent attention. The shares rose 8p to 240p. Last year they topped 400p. Some fee l their recent weakness could provide the encouragement an acquisitive overseas group would welcome.
Lonrho, reporting next week, gained 2.5p to 154p, helped by a Capel recommendation.
Latest to signal its intention of joining the backwater but growing 4.2 market is Balcanto, which specialises in ships serving the oil and gas industry. Dealings in the shares should start on Tuesday. Directors include Hans Christner, managing director of Sally UK, the cruise and ferry company, and Richard Eldridge, chairman of the Westmount exploration group.
Shares of Caradon, the building materials group which have attracted considerable New Year backing, eased 3p to 256p. London Wall Equities is among the group's supporters. Analyst Leslie Kent expects profits of £204m for last year but has trimmed this year's forecast by £10m to £228m. The rating, he says, is far from demanding for a Footsie share with "identifiable recovery potential".
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