Doubts over Saudi deal give BAe rough ride

Market Report

SHARES IN British Aerospace indulged in Tornado-style manoeuvres as the stock market fretted over stories that the crucial Al-Yamamah defence contracts with Saudi Arabia had been frozen.

In heavy trading BAe shares swung from an 11p gain to a 45p loss; they closed down 18p at 412p.

Although the Ministry of Defence denied that the arms-for-oil deal had been frozen or postponed, the market continued to nurse nagging doubts about the contract's future. An MoD spokesman said: "Both the UK and Saudi governments are totally committed to the agreement."

The story surfaced in Saudi Arabia. It was claimed that the Saudi government had asked that the contracts should be frozen at a care and maintenance level at meetings with defence secretary George Robertson earlier this month.

The alleged Saudi request stemmed from the economic difficulties the Arab kingdom was encountering. Any shelving of the 20-year deal, worth billions of pounds and supposed to bring in pounds 2bn a year to BAe, would be a grievous blow not only to BAe but to other defence groups as well.

BAe's results next week are expected to show further scars from the Saudi deal. At the time of its interim figures it was thought to have suffered a pounds 500m shortfall.

The contracts were signed in 1985 by the then prime minister, Margaret Thatcher, and have subsequently been updated. They have already involved more than 120 Tornado fighter jets as well as Hawk trainers and various military vehicles.

General Electric Co, selling its Marconi unit to BAe, also had a volatile session, swinging between a 21p fall and a 10.5p gain but ending off 11.5p at 515.5p in busy trading.

Footsie, too, was on a see-saw, moving between a 71.3-point fall and a 44.9 gain, ending off just 3.5 at 6,074.9. Today's futures and options expiry caused some anxiety. The late rally was helped by a firm New York opening and the Halifax cash handouts.

Last month the stock market, with daily turnover frequently topping 1 billion shares, not surprisingly enjoyed its busiest-ever month. In 20 days' trading shares worth pounds 366bn changed hands, with domestic stocks accounting for pounds 118bn, beating the previous pounds 102bn record established last March. Yesterday's volume was just below 1 billion.

Supporting shares gave ground, with even the small cap index moving into negative territory, off 4.1 at 2,246.7.

Cadbury Schweppes, the sweets group, was again among the Footsie front- runners, gaining a further 36.5p to 1,037.5p as the Hershey merger story continued its mouth-watering progress. Dresdner Kleinwort Benson and SG Securities were among houses to join the buy chorus.

Norwich Union felt the weight of HSBC caution, falling 10.25p to 451.75p, but Legal & General, unchanged at 863.5p, resisted.

Rio Tinto, the mining group, was ruffled by a rogue trade, subsequently cancelled. The shares were at one time up 88p on the miscue, ending 18p higher at 780p. Imperial Chemical Industries was actively traded, with old fashioned dividend washing prompting a 20.6 million Seaq turnover; the shares fell 2p to 543.5p.

With the next Footsie review due next month, calculations are already being made about likely changes. On present form computer groups Misys, which held an investment meeting in New York last night, and Sema would return to the exclusive club, replacing Williams and Tomkins.

Rank, the hard-pressed leisure group, jumped 22.25p to 226.25p on the maintained final dividend. Little Springwood, trading well and buying three Rank nightclubs for pounds 2.25m, improved 21.5p to 91p. Its chairman, Adam Page, took a swipe at the critics of small companies. He said: "If properly managed they can produce results and earnings growth which cannot be matched by larger and more mature companies."

Hazlewood Foods, meeting analysts, firmed 9p to 126.5p, and some supermarket chains were weak on a sales fall illustrated by an AGB survey. Tesco lost 3.75p to 174p. Unilever, off 7p at 600p, was unsettled by DKB caution.

Halifax, on its results and cash handout, rose 19.5p to 791p. Glaxo Wellcome's figures lifted the shares 21p to 2,014p. Abbey National, expected to post a 20 per cent profit gain to pounds 1.55bn today, firmed 22p to 1,336p.

Profit caution lowered CPL Aromas, the flavours and fragrances group, 18.5p to 64.5p. Packaging group John Waddington lost 12.5p to 186.5p. Losses at Danka Business Systems cut the shares 15.5p to 72.5p.

Limelight, the bathroom and kitchen group, sunk 4.5p to 39p as its bid talks, thought to be with Anglian, were called off. But ITG, the Irish computer and telecoms group, produced its expected deal, paying up to pounds 3.1m in cash and shares for Computercall, a credit card services company. The shares held at 395p.

Packaging group David S Smith was the subject of intense speculation. The shares firmed 2.5p to 107p, with Seaq putting volume at a remarkable 9.3 million. Rumours have circulated of a bid but Smith is one of the market's more hoary takeover candidates and some believe the shares were caught in an old fashioned ramp.

Brent International, the chemicals group where a bid is expected next week, firmed a further 1.5p to 112p.

LPA, an electrical equipment group, brightened 5p to 69p after an upbeat trading statement. Pace Micro Technology's revival continued with a 22.5p gain to 141.5p: the digital decoder maker has clinched what it hopes is a breakthrough deal, supplying 100,000 digital television set-top boxes to US group, BellSouth.

Sira Business Systems held at 3.5p. Three minutes before the market closed it was announced that chairman Robert Weigl had sold 7 million shares at 3p. He still has just over 50 per cent of the capital.

Shield Diagnostic jumped 50p to 525p following the Nomura valuation of 2,700p.

Tay Homes, the house builder, softened to 130.5p as "rebel" shareholders were narrowly defeated at a special meeting: 50.8 per cent of the capital supported the board.

SEAQ VOLUME: 998.2 million

SEAQ TRADES: 80,488

GILTS INDEX: n/a

AN INTERNET bookie is hoping to come to the fringe Ofex share market. Netbet is planning to raise pounds 1.2m by selling shares, representing 17 per cent of the company, at 70p. Ofex trading is expected to start within two months.

The company is run by 41-year-old Mark Blandford, who recently sold his chain of betting shops to the Tote.

Netbet has an Alderney betting licence and is based on the Channel Islands.

GOLF CLUB Holdings enjoyed a hole-in-one session, jumping 5p to 25.5p.

The usual takeover stories went the rounds, but the company offered up a more mundane explanation. It drew attention to an offer it had made - to shareholders. It has joined the perks club, and shareholders get eight free golf rounds at its clubs and a 10 per cent discount at its shops. All that is needed is 5,000 shares.