U.K. shares firmer despite deficit news

Press, 1 February 1988, Page 27

U.K. shares firmer despite deficit news

By

PHIL SMITH

NZPA-Reuter London Shares tended firmer in London last week despite news of a December current account deficit of £582 million, which came at the top end of expectations.

The figure compared with a gap of £595 million in November and brings the shortfall for calendar 1987 to £2.69 billion, just over the Treasury’s forecast of £2.5 billion.

Analysts suggested one of the reasons the markets reacted calmly to the apparently bearish payments data was that buoyant economic growth and the consumer boom which has helped suck imports into the U.K. might already be slowing down.

The FTSE 100 put on 19.9 points over the five sessions to 1790.8, just shy of the important 1800 chart point. Analysts said another reason the payments number was shrugged off was because of the market’s current preoccupation with the gyrations on Wall Street and the current bid activity. This theory appeared to be borne out when Wednesday’s U.S. fourthquarter gross national product data lifted shares. GNP rose a higher than expected 4.2 per cent against 4.3 per cent in the third quarter. There was, however, a rise in inventories which implies overproduction and may reflect in a poor growth figure for the first quarter of this year, analysts said. Despite the week’s firm undertone, some analysts were bearish for the performance of equities in the coming months. Barclays de Zoete Wedd chief strategist Peter Thompson is forecasting that while he does not see a severe world slump in shares, it seems likely that equities will be marginally lower by the end of 1988 than they were at the beginning of the year.

Thompson argues that given the October slump, many investors may be more tempted to plump for safer fixed-interest instruments such as Government bonds. However, other analysts are not as pessimistic and indeed are mildly bullish in their outlook for the London equity market. .

Randall Goldsmith of James Capel reasons that with , the U.K. economy in good shape, with fairly good growth and inflation under control, there is no real reason why cash-rich institutions should not put more money back into equities. Goldsmith anticipated earnings growth of around 12.8 per cent in fiscal 1988-89 and estimated that some £6.5 billion of liquidity has been injected back into the market in the recent past via cash bids. However, he pointed out that some of that cash has yet to come because deals had not been concluded.

He also pointed out that institutional liquidity had been helped by a lack of rights issues and flotations.

Along with many other analysts, Goldsmith cited the FTSE 1800 level as providing major upside resistance and said that if this level can be decisively broken a strong rally in share prices could develop. Chartists are pointing to 1965 as the next upside resistance point.

A background, but nevertheless underpinning factor last week was the latest Confederation of British Industry (CBI) quarterly survey which came out with a less gloomy picture of the U.K. industry than had been feared. The CBI said industrialists remain optimistic about continued sustainable growth, but warned there were some signs of overheating. There was not a great deal of corporate news during the week but some

special situations did provide interest, and prompted some speculative money to flow into the market.

The week’s big corporate story, although fairly small in monetary terms, was the raid on shares in oil explorer Tricentrol by U.S. company Atlantic Richfield (ARCO), which stood in the market bidding 180 p a share for a 14.6 per cent stake. The share build-up by ARCO came after an increased 160 p per 'share offer for Tricentrol by French oil company, ElfAquitaine. Many are expecting a full bid from ARCO at 180 p, but Tricentrol ended the week 34p up at 195. The Elf bid is worth £175 million.

Cement maker Blue Circle added 5p to 441 after increasing its bid for U.K.-based engineering group, Birmid Qualcast, best known for its manufacture of lawnmowers. The bid now values Birmid at £275 million or 380 p a share, which climbed a net 30p over the week to 369.

Cigarette maker Rothmans firmed 27p to 415 on continued speculation of a bid for the company. U.S. tobacco firm Philip Morris, which holds 25 per cent of voting rights in Rothmans, is the favourite for a full bid. Pharmaceutical group Wellcome gained 15p to 415 on hopes of higher profits from its anti-A.I.D.S. drug as the international conference on A.I.D.S. got under way.

The electrical sector was hard hit with Racal down 20p to 214 and Ferranti 5p off to 82 both

after disappointing halfyear profits, while high street retailer W. H. Smith eased 6p to 323 despite annual figures in line with market forecasts. Diversified leisure group, Rank Organisation, jumped lOp to 624 after better than expected final results and a bullish chairman’s statement.