Market Report: Boots investors scent trouble in perfume battle

THE scent of the cut-price perfume 'war' wafted round shares of the Boots retailing giant yesterday.

They fell 11p to 471p as analysts calculated the likely impact of the increasingly fierce competition that is engulfing the staid but highly profitable fragrance business.

The privately owned Littlewoods retail chain has stepped up pressure by reducing prices in its 120 outlets. Earlier this year the cut-price Superdrug operation, part of Kingfisher, complained that some leading perfume houses had cut off supplies.

The stockbroker Panmure Gordon was one expressing concern about the possible impact on Boots. There is no doubt perfume profit margins are handsome; some think 100 per cent. With Boots' yearly sales possibly approaching pounds 175m, any dramatic erosion of margins could, some feel, have a telling impact.

But Boots seemed quite relaxed about any cut-price margins squeeze. Sources close to the group suggested higher sales could compensate for any price reductions.

Last year Boots achieved profits of pounds 359.5m. Estimates of pounds 410m for the year running to March could prove too optimistic.

The rest of the stock market was again under the whip of interest rates. At one time shares were sharply lower with the pound under pressure. But they jumped when stories circulated that a 2-point base rate reduction was imminent.

Although best levels were not held the FT-SE 100 index ended with an 8.2-point gain at 2,669.8 with turnover, helped by a programme trade, topping 550 million shares.

Asda edged forward 0.5p to 42p. Nick Bubb at Morgan Stanley rates the shares. 'The cat bounces and it may not be dead', he said. The shares, he feels, should be nearer 60p. Kwik Save rose 14.5p to 734.5p, accompanied by vague takeover talk.

Tesco slipped 2p to 238p. Barclays de Zoete Wedd trimmed its profit expectations. This year's figure has been cut by pounds 10m to pounds 570m and next's by pounds 20m to pounds 620m.

In an active food manufacturing sector Ranks Hovis McDougall was an early riser. Rumours of a counter-bid to the Hanson offer left the shares 4p higher at 250p. BSN, the sprawling French food and drink group, was put forward as the most likely white knight.

Cadbury Schweppes, thought to be holding investment meetings, added 5p to 460p. Unilever, with UBS Phillips & Drew saying buy on currency considerations, edged ahead 15p to 1,109p, a new peak. But Associated British Foods eased 4p to 443p as SG Warburg turned cautious.

Northern Foods rose 6p to 263p. BZW suggested a switch from United Biscuits, unchanged at 325p.

British Steel remained under pressure, down another 3.5p to 52.5p, following its production cuts. IMI, the engineer, retreated 4p to 230p as yet another downgrading materialised - this time from Albert E Sharp.

Heavy option trading kept British Petroleum on the boil, up 0.5p at 235.5p. The shares have come from 182p since August.

BAT Industries had a difficult session with James Capel joining Carr Kitcat & Aitken on the bear tack. The shares fell 17p to 875p.

British Airways was lowered 9.5p to 295.5p as a transatlantic price war loomed. Two US airlines have cut prices. The UK airline revolt over the proposed Davies & Newman deal was another inhibiting influence.

Banks were active as a series of switch recommendations appeared. HSBC, the Hongkong and Shanghai Banking Corporation, climbed back above 500p as the Hong Kong stock market calmed.

Willis Corroon, the insurance broker, held at 220p. The US ADR shareholding has increased to 25.69 per cent.

Electricity and water shares were firm, helped by bullish noises from County NatWest. The utilities profits season starts next month and County drew attention to the expected dividend growth at a time when UK dividends are falling. It said: 'We would expect both the electricity and water sectors to outperform the market during the results, with the latter leading the way.'

Nikko is particularly keen on Yorkshire Electricity, up 1p at 439p.

Levercrest, on its results and rights issue, slumped 18p to 21p and BM Group, the mechanical engineer that has fallen from 413p this year, fell 6p to 72p.

The steel group Brown & Tawse continued to reflect takeover hopes, up 4p to 62p. This week the Suter mini-conglomerate increased its shareholding to 7.38 per cent.

Shares recovered Monday's fall yesterday. The FT- SE 100 index ended 8.2 points higher at 2,669.8, moving between extremes of a 20.7-point fall and a 16.4 gain. The FT 30-share index rose 2.3 to 1,978.5. Turnover reached 551 million shares, with 23,493 bargains. Government stocks were little changed

Shares of the communications group WPP edged forward 5p to 41p yesterday, helped by stories from the US that it had regained the dollars 60m American Express advertising account. Some believe the US advertising industry is beginning to improve; a trend that would have a dramatic impact on hard-pressed WPP. The shares have been as high as 115p this year.

Takeover favourite TSB Group fell 2p to 140p yesterday as Smith New Court, which has slashed its profit forecasts, declared: 'It is time for all but the die-hard bid theorists to sell.' SNC added: 'Underlying performance and prospects remain the worst in the sector.' SNC expects profits of pounds 125m, against its earlier hopes of pounds 221m, this year and pounds 290m next.