Market Report: British Steel loses support as sell advice grows

THE TUG-OF-WAR over shares of British Steel may be swinging in favour of the bears.

Despite mounting losses, the shares have been one of the best performers this year, at one time topping 90p. US support has been one significant influence. At the last count American investors, through the Bank of New York, had more than 18 per cent of the capital. Other US interests could account for another 13 per cent.

But the plight of the privatised steel group has not prevented a succession of buy recommendations. More sell advice is, however, surfacing.

Hoare Govett reduced its loss estimates and even suggested BS could be back in the black in the year to March 1995. Yet it believes the shares remain a sell.

The securities house has cut its loss forecast for the year just ended from pounds 180m to pounds 160m. This year's loss is put at pounds 100m against pounds 150m, and for next year a profit of pounds 140m is predicted. Dividends are expected to be thin - 1p this year and next and 2p if profits are achieved.

When it was privatised at 125p a share in 1988, BS was seen as an income stock. Dividend cover was then an impressive 5.3 times.

But the world recession, creating acute overcapacity in the steel industry, has devastated prospects. BS should emerge in better shape than many of its rivals from any restructuring of the European steel industry. But patience will be needed.

The shares, in active trading, fell 2.75p to 79.75p. They once reached 158p.

The stock market started the new tax year on a subdued note. Much of the trading related to PEPs and tax- inspired selling by small investors. Early exuberance, following the latest car sales figures, proved short- lived and the FT-SE 100 index closed with a 6.6 points fall to 2,832.2.

The fall-out from the US cigarette price 'war' continued to take its toll. BAT Industries, reflecting a weak Philip Morris share price, fell 5p to 880p. Unilever, which some fear could become embroiled in a US detergent battle, lost another 19p to 1,144p. Currency considerations have prompted analysts to trim forecasts. Henderson Crosthwaite has lowered by pounds 50m to pounds 2,375m.

The volatile drugs sector was dominated by Fisons, down 25p to 169p. In 1991 the shares topped 500p. The abandonment of an asthma drug, Tipredane, caused the latest setback.

Zeneca, the Imperial Chemical Industries drug side due to be hived off in June, appeared to compound Fisons' discomfort by announcing it was giving high priority to the development of an asthma drug, Accolate. ICI shaded 3p to 1,153p.

Wellcome, meeting analysts today, continued its recovery. The shares rose 16p to 721p. They have recovered more than half the decline caused by the latest Retrovir study.

Tiphook, the container leasing group, fell 25p to 335p. The surprise pounds 71m American bid for its smaller rival TIP Europe created unease. The takeover will increase competition and leave Tiphook nursing a loss on its 5.5 per cent TIP stake. TIP shares jumped 15p to 40.5p, a little below the bid price.

Vodafone, the cellular radio group, attracted support from a number of investment houses but recorded a 3p fall to 385p. NatWest Securities was one advocating the shares. It was impressed by the March business figures and pointed out the group was 'strongly geared to economic upturn'.

JA Devenish resumed its heady progress, gaining 3p to 307p, highest since 1990. Hoare, the company broker, has trimmed its profit forecast from pounds 15m to pounds 14.7m. The shares have turned in an impressive performance this year, spurred by thoughts that near-20 per cent shareholder Boddington Group may resume takeover hostilities.

British Airways was lowered another 6p to 269p as profit forecasts continued to be pulled back. Reuters dipped 5p to 1,345p ahead of an investment meeting.

The guessing game over MB- Caradon's intended target took a new twist, with Redland put in the frame. The shares rose 6p to 429p, ignoring the worries about the German economy that pulled RMC Group down 17p to 600p.

Micro Focus, weak recently, edged forward 18p to 2,138p. US shareholders, through Bank of New York ADRs, have reduced their shareholding by 2.08 per cent to 34.45 per cent. It is the most significant reduction since the American love affair started.

The computer group said it was holding talks with the Microsoft giant to continue its trading pact which expires at the end of September.

Oil shares strengthened on talk of higher crude prices. British Petroleum improved 5p to 306.5p. Power and water shares were firm, helped by yield considerations.

The car figures stirred a few garage shares into life. T Cowie gained 3p to 211p and Dagenham Motors Group, reporting annual figures today, 2p to 108p.

Sherwood, a lace and underwear group, held at 157p. Annual results are due today. The market expects a pounds 3.6m advance to pounds 18.1m. There were rumours that the results would be accompanied by the acquisition of another clothing group.

Kwik Save, the food and drink discounter, fell 13p to 752p as some fretted about the possibility it will be removed from the FT-SE 100 index at the next revision meeting, due in May. The group is now valued at about pounds 1.15bn. The shares have been as high as 853p in the past year, helped by buying by Kwik Save's Hong Kong shareholder, Dairy Farm, which has more than 28 per cent.

Brown & Tawse, the loss-making steel products distributor, seems to have slipped from Suter's buying list. The mini-conglomerate, thought to be putting together a takeover strike, has sold most of its shareholding in B&T and now has less than 3 per cent. In November it built its stake to nearly 7.5 per cent. The sale was announced after the market closed with B&T shares at 68p.