Tory defeat concentrates market minds on takeovers

MARKET REPORT

The Tory by election disaster sent shares charging ahead.

With John Major's majority down to one and a minority Government looming, the stock market took the view that predators could be rushed into early action.

The attitude of any Labour government to a takeover feast is, at best, untested. So the need to get deals done and dusted before any election had, following the Staffordshire South result, become even more pressing.

The takeover fever was encouraged by what appeared to be a leak of Whitehall's intention to clear PowerGen's bid for Midland Electricity and National Power's offer for Southern Electric.

PG surged 13.5p to 562.5p and NP 14p to 492p The targets also responded with Midland up 7p at 405p and Southern 21p at 839p.

The remaining electricity companies which still command their own destiny anticipated what is now regarded as inevitable bid action.

US power groups are favourite to strike although continental operations lurk. Against such a background East Midlands jumped 34p to 658p; London 10p to 809p and Yorkshire 15p to 898p. Even debt laden Northern Electric rose 21p to 679p.

Waters were also flushed into action. Speculation the proposed bids will be cleared lifted South West Water 18p to 714p.

Ladbroke was back in the frame. In brisk trading the shares edged forward 1.5p to 183.5p with a deal with Hilton Hotels Corporation of the US now the market's favourite option. Whether such an alliance would lead to a bid is, however, unclear.

Cable & Wireless gained 9p to 535p as the Germans expressed interest. In off-the-cuff comments at a Frankfurt dinner Joachim Kroeske, finance director of Deutsche Telekom, let slip the German group had more than a passing interest in Cable.

The Germans have been canvassed as a potential buyer of Cable's Mercury telephone off-shoot but this is the first time they have let it be known that an outright bid is a possibility.

The election result also encouraged suggestions of more economic relaxations. The Tories will, no doubt, redouble their efforts to keep the economy moving ahead and the key part of any election campaign will be tax cuts, on present form announced in the Budget, delivered in April. There are also signs the feel-good factor is seeping into the market, prompting many consumer shares to an enjoyable session.

Building and related shares remained to the fore although RMC, the best performing blue chip with a 47p gain to 1,069p, owed at least some of its exuberance to figures, due next week. Around pounds 321m against pounds 283.3m is expected despite the problems encountered by the group's German interests. With the long mooted housing recovery seemingly materialising Barratt Developments, up 9p at 271p and Beazer, 12p at 201p, led housebuilders.

Kingfisher headed the retail advance with a 19p gain to 602p; Dixons was not far behind, up 13p at 485p and Next improved 15p to 553p.

Royal Bank of Scotland shaded 3p to 501p despite bullish comments from NatWest Securities. The shares have underperformed as takeover speculation has diminished and worries surfaced about the performance of the Direct Line insurance off-shoot. NatWest point out it downgraded for this year from pounds 658m to pounds 618m. But Royal Bank's premium to the sector, say NatWest, is now "very modest and, given the medium term scope for upside surprises on profits, the shares are looking more attractive".

Matthew Clark, reflecting the Credit Lyonnais Laing support, gained a further 16.5p to 761p and MFI, the furniture stores chain, continued to bask in a Kleinwort Benson recommendation with a further 8p gain to 180p.

Micro Focus, the software house, continued to attract support, mainly American, gaining 45p to 898p.

Lonrho slipped 5.5p to 207.5p as the closer involvement with Anglo American, the South African mining giant, was judged as reducing the chance of a bid. RTZ, ferrying analysts to Portugal next week, put on 21p to 994p and the strength of the crude oil price continued to influence British Petroleum, hitting 598p, up 6.5p to 598p. Shell added 13p to 884p and Lasmo 6p to 188p.

VideoLogic the chip maker was little changed at 66p. Charles Stanley, the stockbroker, says the market is only beginning to appreciate the company's world leadership in multimedia chips. It expects losses to continue this year with pounds 4.5m likely; next year there should be a pounds 10m profit.

TAKING STOCK

rBritish Biotech slipped 8p to 2,365p as SBC Warburg placed 1.5 million shares at around 2,200p with an unidentified institution. The shares were put up for sale by a Japanese pharmaceutical group.

A key presentation on Biotech's cancer drug is due next month. The shares have looked a little unsure this month as some investors have locked in their profits. A year ago the shares were down to 462p.

rQueens Moat Houses, the battered hotel group, continues to defy analysts. Most say the shares are overvalued yet they are hitting new highs, climbing 0.5p to 25.25p, a closing peak since last year's restructuring, in busy trading. The suspicion lingers that corporate activity could be inspired by the upturn in the hotels market.