Market Report: Broker sees chilly outlook for Big Food Group

Numis Securities prompted a rush by investors to exit Big Food Group yesterday which left shares of the food retailer within a whisker of their low for the year, down 1.75p at 82.25p. Slashing its profit forecasts for this year and next, the broker warned that BFG is facing growing competition from the likes of Tesco and Asda and said that it is unlikely that the group will be able to do much in the face of the onslaught from these industry giants.

Numis Securities prompted a rush by investors to exit Big Food Group yesterday which left shares of the food retailer within a whisker of their low for the year, down 1.75p at 82.25p. Slashing its profit forecasts for this year and next, the broker warned that BFG is facing growing competition from the likes of Tesco and Asda and said that it is unlikely that the group will be able to do much in the face of the onslaught from these industry giants.

"With major market players like Tesco and Asda pulling out all the stops on pricing we believe that the ability of BFG to follow suit is highly unlikely," said Numis, which urged its clients to sell BFG and set a price target of just 65p.

The broker also believes that the convenience store group will have suffered from the poor weather over the summer. Last summer BFG enjoyed strong trading as the record temperatures in the UK greatly boosted sales of ice cream, barbecue products and soft drinks.

As a result, its performance this year is up against tough comparatives and the 1.7 per cent drop in like-for-like sales that BFG reported for the first quarter could widen to a 5 per cent drop for the second quarter, suggested Numis. And investors should not forget that this is with the benefit of the company's ongoing store refurbishment programme. Without it, sales are likely to be even weaker, argued the broker.

Protecting BFG shares from an even greater fall yesterday was the hope that a takeover bid might soon emerge. It has long been rumoured. Baugur, which has a 22 per cent stake and experience of food retailing in Iceland and the US, is seen as the most likely predator. But, given the weak performance of the business at present, it is unlikely to be in a rush to make a move on the company.

In the clothes retailer sector, Matalan rose 1.75p to 208p ahead of today's trading statement. Brokers are on the whole expecting the group to show evidence of continued recovery, although sales are unlikely to have been as strong as those unveiled by the company at its July AGM.

Rumours of a 175p-a-share bid for Northumbrian Water, 1.5p higher to 143p, were back again yesterday and this time market gossips talked of Kelda, 3p lower at 524.5p, as the bidder. Analysts believe that such a link-up would certainly make sense and that now would be the time for Kelda to make such a move, given the recent publication of guidance on industry pricing by the regulator.

But sector specialists are of the view that the competition authorities are very unlikely to give the deal the green light. They noted that in the mid-1990s Wessex Water tried to buy South West Water (now Pennon) but was blocked outright by the competition authorities, who were so against the deal that they refused even to indicate possible remedies which might enable the purchase to be approved.

BAE Systems improved 4.5p to 205p on the back of an upgrade to "buy" from "hold" at Dresdner Kleinwort Wasserstein. It predicts that BAE's interim results next week will see the group unveil a 5 per cent rise in pre-tax profits to £345m and that long-term momentum is beginning to turn more positive for the defence and aerospace giant.

The German broker also tried to get investors interested in Regus. It initiated coverage of the office space group with a "buy" rating and slapped an 86p price target on the stock. But investors failed to bite and Regus closed 0.25p lower at 65.25p.

Abbey National gained 5.5p to 603.5p on rumours that a counter bid for the company from HBOS, 6p higher at 685.5p, is imminent. Industry sources, however, poured cold water on the talk.

A strong performance by the heavyweight oil sector helped the FTSE 100 index close 42 points higher at 4,502. BG gained 7.5p to 350p, BP improved 10.75p to 503.5p and Shell rose 4.5p to 410p as the price of oil rebounded.

The strong crude price is great news for producers but bad news for companies that use oil as a raw material. And so British Vita, the chemicals group, fell 2p to 241.5p ahead of its first-half results next week. Although the company is believed to be enjoying solid demand, its profit margins will have been impacted greatly as it struggles to pass on rising raw material prices to its customers.

Proteome Science firmed 5.5p to 73.5p on whispers of positive newsflow from the biotech in the coming weeks, while Tenon put on 1.75p to 34p as brokers talked of strong trading at the group. Word has it the business services group is now trading well into the black. Imagination Technologies ticked 3p better to 66.5p on rumours of an imminent licensing deal for its Power VR chip.

Finally, punters should keep an eye on Frontier Mining, which is due to list on AIM today. The group is tipped to raise £3.5m at 15p and brokers expect the stock to jump to a good premium on its maiden session.

MARKET MOVERS

Land Securities 1,190p (up 40p, 3.5 per cent). Dealers report positive comments from heavyweight broker Cazenove as driving the stock higher.

Serco 207.25p (up 8.25p, 4.2 per cent). Merrill Lynch reiterates its "buy" rating after forecast-busting results from the group.

LogicaCMG 166.5p (up 6p, 3.7 per cent). First-half results prove to be not as bad as some had feared.

ITM Power 58.5p (up 6.5p, 12.5 per cent). Issues a bullish business update boasting of key developments in its technology.

Densitron Technologies 16p (up 1.75p, 12.3 per cent). Posts a first-half pre-tax profit of £920,000 compared with a loss of £5.9m a year earlier and assures investors that current trading is stable.

Jarvis 40.5p (up 1p, 2.5 per cent). Appoints Alistair Rae as finance director and unveils a minor disposal.

Costain 42.5p (up 1.25p, 3.0 per cent). Unveils a first-half profit of £8m, up from £6m a year earlier, and boasts of a £1bn order book.

Hampson Industries 19.75p (up 0.5p, 2.6 per cent). Tells investors that its full-year results are likely to improve on those seen last year.

SVB Holdings 26.5p (down 8.75p, 24.8 per cent). Numis Securities downgrades to "hold" from "buy" after insurer unveils £103m hit.

Vislink 18.5p (down 4.5p, 19.6 per cent). Brokers downgrade forecasts after a full-year profit warning from the broadcasting equipment specialist.

Leeds Group 17p (down 3p, 15.0 per cent). Terminates talks aimed at the sale of its two business Hemmers-Itex and Leeds Leasing and issues a profit warning.

Trading Sports 16.5p (down 2p, 10.8 per cent). Andrew Tottenham steps down as chairman.

Desire Petroleum 29p (down 3.5p, 10.8 per cent). First-half losses widen at the Falkland Islands oil explorer.

Signet 102.5p (down 2.25p, 2.2 per cent). Posts solid interim results but complains of weak sales during the month of August.