Banks and oils drag FTSE lower

A hectic day of takeover speculation, intrigue and wild conjecture surrounding the retailing sector dominated trading in London on Monday.

J Sainsbury fell 2.6 per cent to 286.75p after UBS conducted a placing of a 2.6 per cent stake in the retailer at 289.5p on behalf the Gatsby Foundation, one of the Sainsbury family’s charitable interests. The 45m shares flew off the shelves and the placing was completed in five minutes.

Traders and analysts speculated the sale would dampen hopes of a takeover approach for the retailer.

“If there was an imminent bid on the table at a higher level, it would seem unlikely that the trust would would sell onto the market,” one trader said. “Our view was that a bid is unlikely but there is always the possibility of a bid coming from leftfield. This is what has supported the share price - most people thought it was too risky to short the stock while there was propect of a bid.”

Richard Ratner, analyst at Seymour Pierce, also said a bid for Sainsbury was unlikely above 280p a share. “The numbers simply don’t work above that,” he said.

Marks and Spencer traded lower for most of the day after Philip Green, the retail entrepreneur said he was not considering a fresh offer for the UK high street retailer. However, Mr Green retained the right to make an offer if another predator expressed a firm interest. See more on M&S

The announcement was prompted by the emergence on Monday of a possible 410p per share offer from a South African financier, Mark Paulsmeier.

M&S shares spiked in late trading to close 1.8 per cent up at 374p after reports Mr Paulsmeier would visit London next week to table an offer.

But few analysts and traders had detailed knowledge of Mr Paulsmeier’s affairs. Many analysts were sceptical about the prospects of a bid.

“The emergence of Paulsmeier as an alleged predator lacks credibility - he would struggle to get management backing,” said Robert Miller of Dresdner Kleinwort Wasserstein, who added: “Philip Green’s statement probably rules him out bidding for six months.”

Woolworths fell 0.5 per cent to 49p as regulators told Apax Partners to clarify its intentions by March 21 regarding a possible takeover. Apax has tabled an indicative 50p - 55p per share offer for the retailer, potentially worth £789m which has been rejected as insufficient value.

Overall, the FTSE 100 fell 0.6 per cent to 5,032.9 while the mid-cap FTSE 250 lost 0.5 per cent at 7,195.2. Trading volumes were heathier than in recent days at 3.6bn.

Bradford & Bingley lost 3.4 per cent to 329p after it reported a sharp 60 per cent increase in buy-to-let arrears in the second half and a deterioration in net interest margin - its profits on lending.

ABN Amro downgraded its recommendation to “reduce” and revised its target price to 310p from 330p previously.

“Bradford & Bingley has experienced a slowdown in lending in the second half of 2004 due to a slowdown in the wider market and a disruption surrounding the onset of mortgage regulation” said Nic Clarke of Charles Stanley, “With the net interest margin remaining under pressure, our concerns regarding the group’s lack of diversity outside mortgages and its search for lending growth in the higher risk specialist lending segments such as buy-to-let and self certified, we felt that the stock looked expensive.”

HBOS, the second largest player in the buy-to-let market, was also hit, down 1.6 per cent at 852p but analysts said this was a much less significant part of its overall business.

The rest of the banking sector traded lower in sympathy. Royal Bank of Scotland was 0.9 per cent lower at £18.08 but some traders saw this weakness as a buying opportunity ahead of its results later this week.

Randgold Resources led the FTSE 250 with a gain of 6.1 per cent to 666p as Evolution Securities reiterated a “buy” recommendation. A recent vist cemented confidence in the company’s assessment of the huge potential of its Loulo mine in Mali and underlined its appeal as a takeover target.

Housebuilders found encouragement from George Wimpey’s record full-year profits and outlook statement which said pricing had been broadly stable and reservations were strong. Wimpey, up 3.8 per cent at 449p, underlined its confidence in the market with a 31 per cent increase in the dividend. See more on Wimpey

Elsewhere in the sector, McCarthy & Stone added 2.9 per cent to 679p, Persimmon rose 2.7 per cent to 755p and Barratt Developments gained 1.7 per cent at 650.5p.

After an initial rise, BAE Systems traded 1.8 per cent lower at 248.25p after it said it intended to sell a 14 per cent holding in Saab, the Swedish aerospace group. BAE will retain a 20 per cent stake in Saab as a long term investment. See more on BAE Systems

Ahead of BAE’s results on Thursday, Goldman Sachs upgraded its recommendation to “outperform” with an estimated fair value estimate of 285p. “We expect the results to show strong operational cashflow and an increasingly positive outlook.” said Sash Tusa of Goldman.

Corus dropped 3.4 per cent to 57p after two of Japan’s largest steelmakers agreed pay 71.5 per cent more for iron ore supplies this year.

Morgan Crucible rose 3.9 per cent to 187p as the engineering company reported robust full-year results with a strong free cash flow and a £100m reduction in net debt. See more on Morgan Crucible

The company said it was seeing continued recovery in its key markets but currency movements, increased raw material prices and rising energy costs would continue to affect trading in 2005.

Mowlem rose 1.4 per cent to 210p after it announced the restructuring of its construction division into three separately managed divisions, each with its own managing director.

Morgan Sindall rose 4.6 per cent to 656p after the diversified construction group reported better-than-expected full-year results. A positive outlook statement said the order book had grown to £2.26bn and some significant contract wins had already been secured in 2005.

Conflicting research weighted on Reuters, 1.1 per cent weaker at 409.5p. Credit Suisse First Boston reiterated an “outperform” recomendation and increased its target price by 24 per cent to 510p.

However, ING downgraded the global information provider to “hold” from “buy” and urged investors to switch into the publisher Reed Elsevier, 0.9 per cent fimer at 538.5p, for superior valuation and near-term newsflow.

Among the smaller companies, Sportingbet hit an all-time high of 309p, up a further 5.5 per cent, after the online betting and gaming group announced it had more than doubled interim pre-tax profit to a record £18m. It also said it was “comfortable” with analysts’ revised full-year forecasts, up from £47m to between £52m-£54m.

Major shareholder DBS Advisors took the opportunity to offload 18.8m shares, around 5.8 per cent of the company. Dresdner Kleinwort Wasserstein conducted the placing, at 295p a share.

GruppeM, the investment company, which debuted on Aim last week, appeared to be shaping up as another White Nile. The shares climbed more than 50 per cent in morning trade, putting GruppeM’s value at a significant premium to its net asset value. Even though the company dashed market hopes of corporate activity, saying it was not aware of any reason for the rise, its shares finished up 65.5 per cent at 12p.

Energy Technique surged 72.7 per cent to 4.75p after it signed a deal to sell its Diffusion Air Treatment products, including air purifiers and conditioning, to France’s Creactif System. The company also said its air conditioning division had seen sales rise 31 per cent in the year to January 31.

Interserve, the support and construction services group, added 0.9 per cent to 338p after Arbuthnot reiterated its buy recommendation and upped its price target to 400p. Analyst Michael Morris said the market continued to undervalue its outsourcing division.

D1 Oils’ metoric rise in February continued, up 28 per cent at 422.5p, as the alternative fuel company announced that Rolls-Royce would finance a crude vegetable refinery in South Africa. The stock has risen 140 per cent since the start of February, with many having tipped it to be a beneficiary of the Kyoto protocol on climate change. Last week it announced a venture to produce biofuel from a non-edible plant in Saudi Arabia.

Ultimate Leisure, the late night bar operator, firmed 2.7 per cent to 366p on talk it would shortly unveil record interim results, boosted by strong Christmas trading.

Virotec, the environmental clean-up technology group, was up 2.7 per cent at 28.25p after it said it would supply A$350,000 worth of Viromine technology to Oxiana Resources. House broker Numis Securities raised its target price to 40p from 30p, and its rating to ‘buy’ from ‘hold’, on the back of anticipated cash flow from the new orders and interest deriving from two new trials of Virotec technology.

Walker, Crips, Weddle, Beck, the small cap stockbroker, rose 4.8 per cent to 252p after director Stephen Bailey picked up another 6,000 shares, at 239.5p on Monday. The purchase takes Mr Bailey’s buying to 38,500 shares since February 11th. He now holds a 0.8 per cent stake.

Aim welcomed several new listings. Among those making headway, Regency Mines rose 120 per cent to 5.5p as broker ARM Corporate Finance placed 120m shares.

Herencia Resources, an investment company focusing on base metals in South Africa, added 200 per cent to 3p as its broker Nabarro Wells raised £500,000 through a placing of 100m shares.

Mediazest, the advertising group, lost 9 per cent to 45.5p on its debut.