Deputy City Editor
Almost 30 million Trafalgar House shares changed hands yesterday, the second day of heavy volumes, as the former Footsie stock became "the best punt in the market" according to one dealer. The shares fell sharply to a low of 17p as the market dismissed an assurance from the company that it retained the support of its largest shareholder, Hongkong Land, but quickly recovered ground as bargain-hunters moved into the market.
Speculation turned to the future of Cunard, the loss-making shipping line that is now Trafalgar's only reasonably well known asset following the disposal two weeks ago of the Ritz hotel for pounds 75m. Analysts warned that a rumoured disposal of the line, which owns the QE2, would achieve nothing if, as expected, it failed to achieve the value at which the business is quoted in Trafalgar's books.
As expected, the troubled shipping, engineering and construction conglomerate responded to a recent flurry of market rumours about its financial viability by issuing a statement confirming the support of Hongkong Land, the Jardine Matheson associate that took a 26 per cent stake in 1992. The statement, thought to have been forced on the company by the Stock Exchange, was intended to stem a stream of selling pressure that has wiped away three- quarters of the value of Trafalgar since the beginning of the year.
Much of the recent speculation has focused on Trafalgar's ability to pay dividends on both its ordinary and convertible preference shares. Yesterday the company confirmed that, although no decisions had been taken, "on the basis of information currently available it is doubtful whether an ordinary dividend will be declared or whether we will make the payments on the cumulative preference shares on 31 December 1995 and 31 January 1996." The prefs closed 1.25p lower at 41.75p.
Nigel Rich, chief executive, also warned: "Results for the second half of the year ended 30 September will reflect the continuing poor performance of four businesses for which we reported operating losses at the interim stage. The group's overall operating loss for the second half will be very considerably greater than the first-half operating loss." In June, the company shocked the market with a larger-than-expected loss of pounds 48m for the six months to March.
Mr Rich tried to quell fears that any future rights issue to bolster Trafalgar's shattered balance sheet would not be supported by Hongkong Land. "Hongkong Land has confirmed that it remains a long-term investor and is supportive of the actions management is taking."
Analysts welcomed the company's attempt to clear the air after the feverish speculation that had swirled around the market in recent weeks, but they remained in the dark about the true extent of Trafalgar's problems. Forecasts suggest that a full-year loss of at least pounds 75m will be announced in December but brokers admitted their estimates are largely guesswork.
"How much they lose in 1995 is academic" one said. "What we really want to know is how much they can make afterwards and if the balance sheet can hold until then."
Comment, page 25