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The Guardian: British Energy recovers but FTSE 100 slips

EXTRACT: Shell also benefited from hopes it was close to solving the dispute surrounding its Sakhalin-2 project in Russia.


Nick Fletcher
Wednesday October 18, 2006

Power companies were in the spotlight again yesterday, with British Energy and International Power the top two risers in the FTSE 100 index.

International Power added 3.5p to 342p on vague talk of a bid from German utility RWE, which has just sold Thames Water to the Australian bank Macquarie for £8bn. Traders noted that RWE said it had sold Thames because it wanted to concentrate on the converging European electricity and gas markets.

Meanwhile, British Energy recovered 23p to 450p after Monday’s 24% decline in the wake of more boiler problems at its plants, which will hit output. A host of analysts issued notes on the firm, with a wide variety of target prices.

Collins Stewart said the price had fallen too far and set a 563p target. Citigroup maintained a hold rating, saying: “[Monday’s] share price fall cannot be justified on the output news alone, but the market may be forgiven for taking a pessimistic view until the company can prove this to be wrong.” Morgan Stanley cut its price target to 410p, but Goldman Sachs removed the shares from its sell list since they are close to its 12-month target of 434p.

The other major story of the day was Corus. Traders who were betting on an imminent bid for the Anglo-Dutch steel giant from India’s Tata got their wish at lunchtime. Unfortunately for them, the announcement confirming an approach from Tata also said the proposed price was 455p a share in cash, valuing the company at just over £4bn. This is well below the 500p level the shares reached yesterday morning in anticipation that the bid would be closer to £4.8bn, as suggested in a number of Indian newspapers. By the close Corus shares stood at 479p, down 0.5p on the day.

Overall, the market recorded its first fall in seven sessions, with the FTSE 100 down 63.8 points at 6108.6 by the close. The drop in the index accelerated during the course of the afternoon as Wall Street headed south following US inflation and output figures. Underlying American producer prices figures rose by a higher-than-expected 0.6% in September, while factory output dipped by the same amount, prompting worries of higher interest rates at the same time as the economy slows. The news knocked the Dow Jones Industrial Average back by nearly 90 points by the time London closed

There were also UK inflation figures out yesterday. These showed a 2.4% rise in the consumer price index in September, down from 2.5% the previous month, but economists said this was unlikely to prevent another interest rate rise in November.

Miners lost ground as metal prices fell back after recent record rises. Xstrata was 79p lower at £21.30; Rio Tinto lost 92p to £26.75, and Anglo American slipped 67p to £23.59.

The fund management group Amvescap lost 23p to 591.5p after last week’s bid-fuelled increase, when Goldman Sachs was said to be interested in both Amvescap and the hedge fund group Man, down 7.25p to 460p.

On the upside, oil companies were higher as the crude price hovered around $60 a barrel, ahead of an Opec meeting on Thursday to discuss potential production cuts. BP added 2p to 602p, while Royal Dutch Shell A shares rose 3p to £17.83. Shell also benefited from hopes it was close to solving the dispute surrounding its Sakhalin-2 project in Russia.

Elsewhere, the infrastructure services business Mouchel Parkman climbed 8.75p to an all-time high of 373p after it reported a better-than-expected 31% rise in annual profits. Investec analysts advised clients to buy the shares, saying the company’s order book had reached a record £1.2bn. Panmure Gordon was also positive, raising its price target from 360p to 450p. Panmure said Mouchel could easily use its £33m cash pile to make acquisitions.

But the media group Trinity Mirror slipped 8.25p to 488p as Deutsche Bank cut its rating from hold to sell, while Marks & Spencer lost 5p to 646.5p after Dresdner Kleinwort downgraded to hold.

Provident Financial fell 26p to 626.5p after the consumer lending group said it had halted operations in Hungary after new rules were introduced. It estimated the move could hit profits this year by £2m and next year by £6m.

Lower down the market, BBI, the diagnostic test specialist, slipped 3.5p to 138p after it agreed a £7.5m convertible loan with the US group Inverness Medical Innovations, at a strike price of 125p. The money will be used to fund acquisitions. Dealers said BBI already had targets in its sights, and it could raise extra cash if necessary.

Pangea DiamondFields made its debut on Aim, rising from the 60p placing price to 64p, while the video streaming group Vividas added 3p to 43p after it raised £3.1m from Spain’s JHG investment group. JHG will take its stake in the company from 2.9% to 26.8%. The house broker Teather & Greenwood has set a target price of 62p.

Finally, the computer distributor Fayrewood added 7p to 98.5p. The company has agreed to sell its Spanish business UMD to Italy’s Esprinet for €53.5m (£35.8m). Fayrewood bought UMB four years ago for €27m.

Great Portland falls

Property group Great Portland Estates was one of the leading fallers among large companies yesterday. It lost 34p to 582p – a 5.5% drop – following an announcement that Morgan Stanley planned to reduce its 25% stake to around 9.9% with a placing of up to 25.3m shares. Depending on demand and market conditions, Morgan Stanley said the size of the placing might be increased. Company sources said the reason for the disposal was that Great Portland Estates planned to become one of the government’s new tax efficient Real Estate Investment Trusts in January, and under the rules of the scheme, no one shareholder was allowed to own more than 10% of a REIT. Great Portland announced earlier this month it was in talks to buy rival London Merchant Securities.

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