Market Report: Bears bale out to avoid Invensys disappointment

THE BEARS got stuck into Invensys yesterday amid rumours that tomorrow's interim results will disappoint.

As the FTSE 100 swung wildly throughout the session, the engineering giant fell over 8 per cent as a number of sellers capitalised on the recent rally and baled out.

The story is that Invensys, formed earlier this year from the merger of BTR and Siebe, could deliver a package of bad news with the figures.

The Invensys-sceptics are not concerned with the level of profit - which should come in at around pounds 560m - because the completion of the merger makes comparisons with last year meaningless.

What bugs the bears are whispers that trading is not very good. They said that tomorrow's current trading statement will be carefully analysed for signs of a slowdown in Europe, the US and Asia.

Another area of concern is the group's ambitious disposal programme. At the time of the merger, chief executive Allen Yurko promised that the sale of non-core businesses would fetch pounds 1.8bn, with pounds 1bn of the proceeds set to be returned to shareholders.

So far, the disposal tally has reached pounds 640m and the company maintains that it is on track to reach pounds 1.8bn. However, industry experts believe that Invensys is some pounds 200m behind target and faces an uphill struggle to make up the difference.

Not everybody agrees. Old market heads yesterday cautioned against a massive sell-off of Invensys, arguing that its markets have been picking up and the trading statement should be upbeat.

Remaining blue-chips had a roller-coaster session. The FTSE 100 swung in a 142-point arc before ending 40.3 lower at 6442.0. Domestic and international factors were behind the leading index's fourth straight closing loss. On the international scene, a shaky opening in the Dow helped to erase a promising start in London. And on the home front, a bout of profit-taking in the heavyweight telecom sector compounded the blue-chips' gloomy mood. BT, down 31p to 1236p, was at the forefront of the phone stocks' rout as traders reaped the profits of the recent spike.

COLT Telecom shed 13p to 2067p after its founder said it is overvalued, while Energis, which releases interim figures today, lost 6p to 2312p. Cable & Wireless bucked the trend, ringing up a 8p rise to 849.5p on growing talk of a bid, possibly from Deutsche Telekom. As for Vodafone, late selling pressure caused a 0.25p fall to 275.25p despite chief executive Chris Gent's claim that it is well placed to win 50 per cent of German target Mannesmann.

Non-telecom casualties included Railtrack, down 49p to a 12-month low of 992p amid fears over its infrastructure spending and the renewal of train franchises, while Thames Water fell 36p to 884.5p on concerns that it has overpaid for US rival E'town.

Among the risers, British Aerospace flew 19.75p higher to 365.5p after a CSFB push. There also rumours of US deals and even of a contract win for Boeing. Cement-maker Blue Circle soared another 30p to 365.25p as the market dismissed its denial of a bid approach from French rival Lafarge.

Gas group Centrica fared 2.5p better to 158.25p in good volume on talk of a overseas acquisition. Marks & Spencer posted a rare rise, of 10.75p to 248.75p, amid whispers that a shake-up of its property portfolio is on the way. A sale and leaseback or even an outright sale of its Baker Street's historic headquarters was mooted. The usual stories of a bid from Tesco, 4.25p better at 174.75p, or Kingfisher, 17p lower to 627p, were also heard. Other retailers continued in the doldrums. Talk of bad trading and profit warnings sent clothes chain Debenhams 13p down to an all-time low of 179p and stationery giant WH Smith, 12p down to a yearly nadir of 373p. Even wonderstock Matalan, down 57.5p to 1442.5p, was caught in the malaise.

Arcadia was a glowing exception, rising 8p to 98.5p on and whispers that a predator could be having a look. Archie Norman's Knutsford, up 6p to 200p, was mentioned.

The second liners were in much better nick than the leaders. The FTSE 250 ended up 17.8 at 6101.2, while the Small Cap gained 8 to 2849.7. Bids, real and imagined, were behind the undercard's rise.

Hotel group Swallow soared 79.5p to 387p after confirming a 390p-per- share cash bid from Whitbread, 3.5p higher to 574p. Whitbread bought heavily in the market and ended up with around 50 per cent of its target.

Rival Greenalls, flat at 275p, and Thistle Hotels, 8.5p higher at 173.5p now look vulnerable to a strike by a venture capitalist or a bigger peer such as Granada, 14p better at 552p.

Vague talk of deals sent engineer Morgan Crucible 14.5p higher to 264p. Rehashed whispers of a strike from a rival pushed utility Kelda 12.75p higher to 325p. The high-flying hi-tech stocks finally ran into profit- taking. Computer group Admiral shed 117.5p to 1252.5p, game-maker Eidos lost 411p to 4500p, while decoder-maker Pace Micro plunged 35.25p to 505p.

Banking software specialist Financial Objects bucked the trend, jumping 54p to a record 475p amid talk that a rival, possibly sector giant Misys, down 26p to 671p, was building a stake.

The tiddlers are in the midst of a float-bonanza. Yesterday, housebuilder Propan Homes debuted on the junior Ofex market with a 1p rise to 11p. Today, accident recovery group Ellen starts at 45p with the largest-ever Ofex float, while pet products distributor Zoa debuts on AIM at 20p.

Biotech group Biocompatibles soared 50.5p to 380p after confirming a deal with US rival Abbott. There is talk of imminent approval of some of Biocompatibles' drugs and even of a bid. Property minnow Allied London firmed 2p to 128.5p amid rumours that the former chairman had agreed to sell its 11 per cent stake to a management buy-out team led by Deustche Bank.

The bears undid bra-maker Sherwood Group, 3p lower at a record low of 9.75p amid fears of bad trading, while video-phone maker MotionMedia surged 25p to 125p after winning an order with US giant MCI WorldCom.

SEAQ VOLUME: 1.5BN

SEAQ TRADES: 112,588

GILTS INDEX: 106.70 -0.64

f.guerrera@independent.co.uk

MAZARAN LEISURE is flexing its muscles. The AIM-listed operator of health clubs jumped 8.75p higher to 30.5p yesterday on whispers that some institutions are filling their trainers. Chairman Sandy Anderson is rumoured to have toured the City to highlight Mazaran's attractions. Some said they would not be surprised if Mr Anderson, who owns about 50.5 per cent, was to strike a deal over the next few months.

THE FINANCIAL group Talisman House, 3.75p up to a record 17p, is engulfed in a flurry of rumours. Racier traders believe that Talisman, which owns the broker Seymour Pierce, could soon be approached by a rival. However, cooler heads said that the bid talk is premature. According to them, the share price is going up due to rumours that the company is set to extend its reach with a new venture capitalist fund and a division to deal in Ofex shares.