Market Report: M&S shares shrug off a downgrading

MARKS and Spencer, regarded by many as the bluest of the blue chip retailers, suffered the indignity of a profit downgrading yesterday.

And, just to pile on the agony, Barclays de Zoete Wedd, which recently described M&S as 'our favoured major', took the shares off its buy list, relegating them to hold.

M&S shares took the rebuff in their stride, closing 2p higher at 323p. They have, however, performed well this year and it is their strength in a soggy stock market which has prompted the recommendation change.

BZW has trimmed its profit forecast for the year ending March by pounds 10m to pounds 730m and the following year by pounds 20m to pounds 830m.

The M&S downgrading occurred as the market clutched at a delicate hint that interest rates could be cut. The Bank of England offered the merest indication a downward movement could be possible shortly by shaving its long-term money market rates.

Shares jumped. At the close the FT-SE share index was up 21 points at 2,497.1.

The interest rate story did not gain unanimous acceptance. It was greeted in some quarters with considerable scepticism.

Technical factors were evident. And, with New York closed, a mark-up to help market-makers reduce their stocks could be achieved without any significant challenge. Trading was not heavy and the suspicion that the whole exercise was yet another 'dead cat bounce' tended to restrict progress.

But the US interest rate cut clearly puts more pressure on the UK to reduce its rates. The performance of sterling will, however, decide whether any move is possible.

The usual raft of downgradings appeared. Blue Circle Industries missed the revival, falling 5p to 209p as Goldman Sachs cut its forecast from pounds 131m to pounds 120m. Carlton Communications dipped 8p to 600p. Cazenove was said to have chipped pounds 4m from this year's forecast to pounds 102m.

Textile group Coats Viyella, however, shugged off a downgrading by Societe Generale Strauss Turnbull. The investment house cut from pounds 140m to pounds 130m but the shares edged forward 2p to 188p.

BZW did not restrict itself to reducing its M&S projection. It joined others in lifting expectations for Next, the once troubled retailer. It has revised its estimate for this year from pounds 20.5m to pounds 24.5m and next from pounds 25.5m to pounds 29m. The shares, strong on Thursday following upgrades, gained a further 4p to 93.5p.

British Gas was actively traded, gaining 2p to 252p. A quickly called analyst meeting created much of the excitement.

Forte, the catering and hotel group, had another difficult session as the market fretted about its contract catering deal. After the market closed it was confirmed that the proposed sale to Compass Group and ARA of the US had been abandoned.

There are fears that Forte will attempt a rights issue to provide the cash for hotel expansion. With a hovering line of stock also hitting sentiment the shares fell 10p to 184p.

Wellcome revived. The shares rose 21p to 877p. US investment roadshows for the group's huge secondary flotation have gone well and difficulties elsewhere in the UK new issues market are not seen as a serious threat to the share sale.

British Aerospace encountered new turbulence as the Government said it was reviewing its options over the Euro fighter. There was talk that Spain was losing interest in the venture following the German withdrawal. The shares fell 7p to 243p. BAe refused to comment.

But TI Group, down 9p to 336p, said the Euro fighter represented possible sales of only pounds 12m against a group turnover (before the takeover of Dowty Group) of pounds 900m.

Improving air traffic figures lifted British Airways 4.5p to 265p and BAA 9p to 670p.

BM Group was one of the best performers. A soothing statement and the prospect of a higher dividend pushed the shares 35p higher to 135p.

BT partly-paid shares rose 8p to 242.5p on hopes that the second call enjoyed a big take-up.

In an odd little deal London & Manchester Assurance is increasing its stake in Lynx Holdings, a computer and playground equipment group, to 9.8 per cent. Lynx is raising pounds 112,000 by issuing new shares to the assurance group at 30p against a 31p market price.

Marshalls, the concrete products group, shaded 1p to 73p. James Capel placed 15 million shares at 72p. They were the main part of a rights issue at 75p a share which flopped.

A profit warning lowered British Dredging 38p to 80p.

Shares recovered a little lost gound yesterday. The FT-SE share index closed 21 points higher at 2,497.1 after being down 8.6 in early trade. The FT 30-share index gained 14.4 to 1,915.5. Turnover, however, was unimpressive with Seaq putting volume at 429.9 million shares. There were 20,600 bargains registered

Simpsons of Cornhill rose 1p to 36p. A 20.3 per cent stake has moved again. It changed hands in April to a company thought to be related to financier David Rowland. Now a Guernsey business, Spread Trustee Co, has paid 42.5p a share for the holding. Simpsons has acquired the Palio restaurant in Westbourne Grove, lifting its London chain to four, and is trading well.

Euro Disney lost another 5p to 1,068p on fears that the French lorry drivers' blockade is taking its toll. This weekend represents the start of the peak trading season and visitors are likely to avoid the theme park 'like the plague', said Nigel Reed, leisure analyst at the French-owned Paribas securities house. He believes the shares, 1,693p earlier this year, should be sold.