Market Report: Racal climbs as chairman shows his faith by buying

Racal Electronics, involved in its third major restructuring, climbed 6.5p to 250p, as investors followed two long standing bulls of the shares - chairman Sir Ernest Harrison and analyst Brian Newman.

Sir Ernest has displayed his faith in what is, in effect, the rump of his empire by buying 545,000 shares at 232p. Other directors acquired 55,000.

Mr Newman, with stockbroker Henderson Crosthwaite, believes the shares are a buy despite the likelihood of heavy losses in the current year.

Racal was bumping along around 200p just ahead of the announcement that it intends to sell its loss-making data products division and float its telecom operations.

The float will be the third Sir Ernest has masterminded. Vodafone was the first to be split from Racal; then came Chubb Security (now part of Williams).

By opting for a sale and float Sir Ernest has met stock market expectations. Indeed there is a feeling he should have undertaken such a move much earlier.

The data side has been in the red for seven years. Mr Newman, in his latest circular, estimates about half the business can be sold with the remainder likely to demand substantial write-downs, probably pounds 195m.

The rest of the business, such as defence electronics and the stake in the Camelot lottery organisation, has an estimated 320p break up value.

Racal Telecom will come to market within 18 months. Mr Newman values it at pounds 425m, or 150p a Racal share. He points out it has a larger fibre- optic network than Energis, floated by National Grid, and more deals similar to one completed with Vodafone are being lined up to extend European operations.

Footsie, after a three-day winning streak, fell 12.6 points to 5,190.8 in fairly active but largely featureless trading.

Diageo, the result of the Grand Metropolitan/Guinness merger, ended at 590p after touching 595p in often brisk trading.

Bass frothed ahead 37p to a 936p peak as Goldman Sachs, for long keen on the shares, put out a 1,150p target. So far this week Bass has rolled out the pounds 279m sale of its bingo operations and a pounds 564m pubs disposal as well as an pounds 850m share buy-back. Scottish & Newcastle and Whitbread joined in the seasonal cheer with gains of 20p to 758p and 23p to 897p respectively.

Festive joy was again absent from retailers. More profit downgradings and warnings did the damage. Nick Bubb at Societe Generale Strauss Turnbull cut his Marks & Spencer estimate pounds 20m to pounds 1.14bn. Profit warnings took Oasis Stores down 56p to 130p against a 148p flotation two years ago; Mulberry, the luxury goods group, tumbled 20p to 53.5p compared with last year's 153p issue price.

Coats Viyella, the engineering and textile group, the latest to climb on the break-up bandwagon, killed any enthusiasm when it also produced a profit warning; the shares fell 15.5p to 95p. Pearson also warned that growth is slowing and lost 5p to 824p.

With the Christmas spending spree still elusive, Kingfisher shaded 7p to 845p and Boots 16p to 877p. M&S fell 20p to 600p.

Nycomed Amersham continued to enjoy its Footsie arrival, gaining 80p to 2,350p.

Ionica, the telecoms group, rallied 14.5p to 74.5p. It touched 421p in the summer. There is evidence the group has been professionally bear-raided and the modest rally could indicate some of attackers have decided enough is enough and closed their positions.

Stories about problems have buzzed around since the digital radio wave group admitted it was running behind schedule. Removal from the FTSE 250 index, forcing some tracker funds to unload, has also hit the shares. But many of the bear stories seem exaggerated. There is now even bullish talk that Ionica could be the ideal takeover target, if only for its cash pile, which tops pounds 200m. At 74.5p it is valued at pounds 126,5m.

Scruttons, the shipping and transport group, jumped 40p to 310p on the pounds 15.5m bid from unquoted Cenargo Fast Ferries, which has acquired 56.3 per cent. Newcomer BCO Technologies arrived on AIM and Dublin's DCM. Placed at 140p the shares closed at 150p.

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