Market Report: Abbey National falters as analysts turn cool

CONCERN about increasing competition in the mortgage market hit Abbey National yesterday, with UBS in particular adopting a negative stance.

Abbey, down 11p at one stage, closed 8p off at 403p. Some 9.6 million shares were traded.

John Aitken, director of research at UBS, said: 'Hard times in the mortgage market would affect Abbey more than most.

'There was already a serious threat of narrowing mortgage margins, with banks and building societies becoming more competitive, but mergers like Lloyds Bank and Cheltenham & Gloucester and moves by Direct Line will increase the pressure.'

UBS has not changed its profit forecast for Abbey for next year, but at pounds 925m pre-tax it is already considerably below the consensus forecast among analysts of pounds 975m.

Mr Aitken believes, however, that the impact from mortgage competition will be bigger in 1995 than this year.

He says it all amounts to a big downside for Abbey's shares, and added that the shares might end up settling down somewhere between 300p and 350p.

A taste of the competition to come was provided by Royal Bank of Scotland on Wednesday night when it entertained several leading banking analysts.

Peter Wood, founder of its Direct Line subsidiary, said he wanted to do for mortgages what he had done for general insurance.

That prompted analysts yesterday to mark down the banks with the biggest exposure to mortgages. Around 80 per cent of Abbey's income is from home loans, compared with 10 to 15 per cent for most other banks.

TSB, which is exposed heavily to the mortgage market, lost early gains of a couple of pence and closed unchanged at 219p.

Abbey's share price performance contrasted starkly with its peers in the FT-SE 100 index.

Rattled by an overnight fall on Wall Street resulting from a poorly received auction of US Treasury stock, blue chips recorded big falls in early dealings. Barely 30 minutes after the bell Footsie was off 25.2 points.

However, better-than-expected UK trade figures stopped the rot and the afternoon session was aided by healthy news on US inflation. The Dow Jones more than recovered the previous day's 27- point fall in early trading, and Footsie closed 7.3 higher at 3,137.8. Volume trading in British equities totalled 722.5 million.

Despite London being knee- deep in corporate announcements, the gossip tanks for the Enterprise Oil bid for Lasmo were full to overflowing.

There were some strong rumours that Enterprise might take the sting out of today's expected publication of Lasmo's defence document by increasing its pounds 1.45bn bid terms.

Thoughts by dealers of a full- blown cash offer of 160p a share have been increased to 165p. Talk about a counter-bid, possibly from Total, also resurfaced.

Lasmo shares, which were also helped by news of possible reserves of 900 million barrels of oil on its joint venture operation in Algeria, gained 2p to 156p. Some 10 million shares were dealt. Enterprise retreated 11p to 429p with Kleinwort Benson said to be advising investors to sell.

Meanwhile, British Gas firmed 1.5p to 298p on a gas and oil find on its joint venture project in Pakistan. Tullow Oil, which has a 15 per cent stake in the venture, rose 3p to 30.5p.

SG Warburg issued 20 million US-style call warrants on a basket of UK food retailers. One basket is controlled by 10 warrants.

Each basket has equal weighting in J Sainsbury, up 0.5p to 389.5p, Tesco, down 2p to 233.5p, William Morrison Supermarkets, up 1p to 126p, and Argyll Group, also up 1p to 253p.

Rank Organisation was mauled, losing 15p to 403p after releasing its trading statement. While analysts believed the underlying message from the statement's content was positive, they said it lacked sparkle. A 1 per cent rise in bingo turnover and a levelling off in holiday bookings were the biggest disappointments.

Among the big results announcements Grand Metropolitan wrong-footed analysts with bad news on destocking. The shares dropped 26p to 457p.

Confirmation that some of the prime lots in this week's auctions of contemporary and impressionist art in New York went unsold stripped 11p off Christies International to 192p.

In publishing, strong interim figures boosted Euromoney 125p to an all-time high of pounds 18.25p. Metal Bulletin gained 10p to 460p as Emap, off 7p to 378p, nudged its holding up to 20.59 per cent.

Wakebourne's one-for-forty share consolidation saw an opening price of 110p rise to 116p.

John I Jacobs advanced 5p to 61p on the appointment as chief executive of Michael Kingshott, former managing director of Sally Line's parent company.

Vymura, the latest newcomer, finished 8p above its flotation price at 158p.

The recovery in Dawson International shares was undermined by Smith New Court downgrading forecasts for the Pringle textile company. Concern about a 50 to 80 per cent rise in raw cashmere prices has led SNC to slice its 1994/95 estimate from pounds 33m to pounds 30m, and from pounds 37m to pounds 33m for the next year. Dawson, despite still being viewed as a takeover target, fell 5p to 159p.

Rumours are beginning to circulate that Hollas Group, the textiles group, is lining up more acquisitions. The company recently splashed out pounds 9.5m on two specialist clothing groups. Those deals were funded out of a pounds 17.3m rights issue. Hollas was yesterday trading at 29p, against the rights price of 25p and the 30p price of Wednesday's agency cross of 4.3 million shares.

The FT-SE 100 index, down 25.2 points in early dealings, closed 7.3 higher at 3,137.8 as economic data helped to allay fears about a possible rise in US interest rates. The FT-SE 250, however, eased 0.1 to 3,742.4. The account ends today with settlement on 23 May.

(Photograph omitted)