Marlet Report: US forecaster brings BA shares down to earth

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The Independent Online
SHARES of British Airways came under intense pressure as a leading US securities house sharply lowered its profit forecasts.

Glenn Engel, at the New York office of Goldman Sachs, slashed his estimate for the year to next March from pounds 200m to pounds 175m and for the following year from pounds 285m to pounds 265m. His revisions sent BA shares tumbling 10p to 297p in often brisk trading.

Even before his dramatic downgrading, Mr Engel was a mega-bear of BA. His pounds 175m prediction compares with estimates of up to pounds 400m by London analysts, some of whom are looking for up to pounds 460m for next year.

But there are signs that BA enthusiasm is wilting in London. Carr Kitcat & Aitken has lowered its 1994 prediction from pounds 280m to pounds 245m.

Since BA's pounds 440m rights issue the clouds of uncertainty have been gathering over the 'world's favourite airline'. Its policy of taking minority interests in overseas aviation groups has not won unanimous support, with many fretting about the long-term returns BA can expect. Competition is becoming more intense, with discounts eroding margins.

The industrial unrest in the airline industry is regarded as another worrying development and some have even drawn attention to the bonus ticket facilities - such as air miles - on offer which, it is argued, should be regarded as a continuing liability until realised.

Adding to the anxiety is BA's protracted confrontation with the small Virgin airline, which is clearly going to be an exceedingly acrimonious and messy affair.

BA was not, however, the only airline operator to lose stock market altitude.

Owners Abroad, the package tour group taking in the Air 2000 airline, produced a dismal trading statement, sending the shares crashing 32.5p to 66p. Airtours, which bid unsuccessfully for Owners earlier this year, was busy making an investment presentation at Hoare Govett. The shares fell 3.5p to 334p.

To pile on the holiday agony, Euro Disney dived below the flotation price, tumbling 108p to 675p after unfolding its latest tale of woe. Eurocamp, already weak following poor trading, fell a further 6p to 187p.

The rest of the market had an uneventful session, with the FT-SE 100 index losing an early Tokyo-inspired gain to close 2.4 points down at 2,845.9. The supporting FT-SE 250 index rose 6.5 to 3,226.4. A strong New York opening had little impact, with shares seemingly determined to stay in an unshakeable summer malaise.

BT dipped 1.5p to 424.5p as SG Warburg started its US-style book building, collecting bids for the BT3 share sale.

Financial shares were firm. The banks continued to anticipate the interim profits season and some insurances were again buoyed by hopes of better US returns.

Lonrho was firm, up 5p to 134.5p. Hopes that it intends to sell at least some of its controlling stake in Western Platinum continue to go the rounds. The reshaping could embrace other sales, including its involvement with the German Krupp steel group. The recent strength of metal prices is another influence.

Tate & Lyle, the sugar group, was at one time up 15p. The shares closed 5p higher at 387p. A number of stories went the rounds. Stock building by a big US rival was one - another was a US price increase that could translate into an extra dollars 60m profit for T&L in a full year.

Kingfisher, up 14p at 609p, was helped along by bullish comment from a number of houses, including Panmure Gordon and SG Warburg. Boots fell 2p to 429p ahead of a City investment presentation.

British Aerospace ended 3p higher at 402p after the refinancing. Vickers put on 5p to 150p on reports that Rolls-Royce production would be increased by 25 per cent because of overseas demand.

General Electric Co gained 3p to 318p. Credit Lyonnais Laing and Warburg made positive comments.

Guinness managed to edge ahead 4p to 470p in response to the Tokyo tariff accord. Burn Stewart, a much more modest whisky group, rose 5p to 122p.

Worries about the direction of Taunton Cider left the shares 11p down at 209p. Its rival HP Bulmer, reporting soon, gained 7p to 400p.

Among brewers Whitbread remained under pressure, reflecting concern over 'parallel' imports. The 'A' shares lost 3p to 474p. They have fallen 25p this week.

The hotelier Forte dipped 4p to 222p with NatWest Securities expressing concern about discounting. It has cut its forecasts from pounds 104m to pounds 99m and from pounds 141m to pounds 136m.

British Steel fell 1.75p to 89.25p, with the chaos in world steel markets taking its toll. Merrill Lynch, the US house, was reported bearish.

Proteus jumped 22p to 410p. It has formed a US offshoot to develop HIV treatments.

Perpetual, the unit trust group, rose 24p to 544p, highest this year. The shares were 480p on Monday. The sudden enthusiasm has prompted suggestions that corporate activity is imminent.

But Perpetual did not have the unit trust field to itself. M&G was another in demand, up 14p at 803p.

In quiet trading the FT-SE 100 index fell 2.4 points to 2,845.9. At one time it was up 7.4. The FT-SE 250 index rose 6.5 to 3,226.4. Turnover was 577.6 million shares with 24,951 bargains. The account ends on 16 July with settlement on 26 July. Government stocks were firm.

Haemocell, the medical group, jumped 14p to 162p as a 550,000 share overhang was mopped up by Henry Cooke Lumsden, the Manchester stockbroker. NatWest Securities is to be replaced as a market-maker in the shares by Smith New Court. Haemocell, making blood filtering equipment, could now be in profit although a loss is expected for the year ending next month.

Molynx Holdings, the closed-circuit television group, has attracted another significant shareholder. On Wednesday Ringwood Securities, related to David Williams, disclosed a 5.69 per cent shareholding. Yesterday Pyman Bell, an investment group, said it had 6.68 per cent. Molynx, which is no stranger to takeover speculation, rose 4.5p to 35p, a two-day gain of 11p.