Market Report: Matalan rises on talk of bumper sales

THE CLOTHES retailer Matalan sported a smart rise yesterday as talk of a bumper first half triggered a wave of buying.

As the FTSE 250 broke its all-time high and the blue-chip index stop just short of its best ever level, the discount chain put on 20p to 902.5p as punters scrambled to get a piece of its latest sucesses.

The rumour coming from the High Street is that Matalan's large shed-like stores are experiencing strong trading as consumers warm to their value- for-money offering. The bullish whispers were reinforced by a 30-page note published yesterday by the house broker Warburg Dillon Read. According to Warburg's retail team, Matalan's strong sales growth just before the end of the first half of the year should produce a sharp jump in interims profits to around pounds 15m from pounds 6m last time.

The broker believes that the good first half numbers, due in September, will boost full-year figures and has upgraded its final pre-tax profits predictions to pounds 39m from pounds 36m, a 62 per cent rise. Warburgs upped its target for Matalan shares, floated at 235p last year, from 900p to 1000p. The optimism surrounding Matalan's trading reawakened rumours of a strike by US giant Wal-Mart. With around 80 large stores around the country, the chain could be the ideal target for the acquisitive retail powerhouse.

With Matalan's shares near their highs and chairman John Hargreaves and associates holding a sizeable stake, a bid would not be cheap, but Wal- Mart's takeover of Asda has shown that money is no obstacle for the US company.

The rest of the market put together a rip-roaring rally, which left the FTSE 100 close to its all-time peak.

The blue-chip index closed 100.1 better at 6,592.0, less than 9 points below its April high. Wall Street was again looming large in London, even though the US markets were closed for the Independence Day holiday. The Dow's record-breaking performance on Friday inspired its UK counterpart, relegating a benign service sector survey and bid rumours to the role of domestic sideshows.

The midcap did even better, settling 39.9 higher at a best-ever 5975.0. The record was a vindication of the revival experienced by smaller companies since the start of the year. After a rotten 1998, mid and small cap stocks are back on institutions' radar screens as fund managers look for the value hidden in the undercard. The Small Cap confirmed the small-is-beautiful theme, rising 13.7 to 2690.6 - its 1999 record.

Takeover rumours were the thread linking big hitters and minnows. Among the former, Cable & Wireless rang up a 49.5p rise to 831p on revived talk of a strike from a European rival such as France Telecom or Deutsche Telekom. The acquisition of Internet services provider INS also helped. The gas group BOC ballooned 58p to 1286p as dealers whispered that an offer from French rival Air Liquide is near.

Insurer Royal & Sun rose another 24.5p to 586p amid on-going talk of a bid from Germany's Allianz or CGU, up 30.5p to 938.5p after buying 49 estate agents from the Halifax. Norwich Union, another takeover target, firmed 1.5p to 447p. Recently merged Vodafone Airtouch, up 58p to 1,348p, was heavily traded as index funds increased their weightings. Talk of a sale of its Cellnet stake pushed Securicor 23p higher to 607p, while Centrica motored 2.25p ahead to a record 151.25p after confirming the pounds 1.1bn purchase of the AA.

Carlton beamed 14p up to 549p after Investec Henderson Croswaithe analyst Mathew Horsman upgraded his price target to 675p. He believes that on Thursday Carlton and Granada, up 9p, to 632p, will announce their ONdigital venture has sold 240,000 digital TV kits and is on course to meet its end-year target of 500,000.

United News & Media rose 15.5p to 645.5p on rumours of a sale of Express newspapers, while US influences and merger talk lifted SmithKline Beecham 40.5p higher to 880.5p. BAT, 21p lower to 591p, headed the losers' table after Morgan Stanley downgraded the sector. Whitbread lost 16p to 985p after Punch Taverns ally Bass, up 22.5p to 963p, upped their bid for pubs owned by Allied Domecq, up 4p to 624p. Rival Scottish & Newcastle, results today, frothed 18.5p up to 703.5p on trading optimism and talk of a disposal of its holiday business.

Shell was heavily traded and finished 12.25p to 506.25p amid rumours that it might bid for a rival or gatecrash the surprise merger between Total and Elf. A spike in the oil price also helped. Oil explorers were seen as the next victims of the sector consolidation. Enterprise Oil, up 36.25p to 462.25p, and British Borneo, 15.5p higher at 225.50p, are prime targets. But Lasmo, 9p better to 159p and its merger partner Monument Oil & Gas, up 2.75p to 66p, are not immune.

JJB Sports scored a 26.5p victory to 331.5p after a positive analysts' visit and vague bid talk. Returning speculation of a strike hoisted engineer Morgan Crucible 14.5p higher to 275.5p, whil rival Glynwed soared 27.5p to 244.5p on market delight at its pounds 224m buy of Canadian pipe group Iex. Old chestnut Pilkington firmed 5p to 96p on whispers of strike from a venture capitalist and a WestLB Panmure "buy".

Electronic group Pace Micro shed 9.5p to 200p despite good results as brokers worried about margins.

Irish driller Tuskar Resources was the star minnow. The stock more than doubled to 0.87p after clinching a lucrative Nigerian deal. Computer group Fayrewood jumped 33p to 138.5p. The AIM-listed group is floating its subsidiary Computerlinks in Germany and the shares are trading at double the estimated price. Textile distributor Caldwell rose 10p to 46p after tipster Jim Slater bought a 3 per cent stake. Advanced Power Components surged 11p to 70p, on talk of a deal with IBM. Business support group RCO Holdings firmed 9p to 280p. A European bidder is rumoured to be sniffing around. Peptide Therapeutics collapsed 25.5p to 52.5p after scrapping an allergy vaccine, while medicl group Biotrace shed 10p to 50.5p after a profit warning and its chief executive's departure.

SEAQ VOLUME: 1.05bn

SEAQ TRADES: 78,228

GILTS INDEX: 106.82 -0.41