Market report: Wednesday close

By SARAH MARKS FOR MAILONLINE
Updated:

 

A LARGE chunk of Woolworths was offloaded today, sparking a flurry of speculation. Almost 63m shares - some 4.3% of the company was sold by Merrill Lynch at 33½p, leading to hopes that a serious suitor may be stakebuilding.

Fresh rumours of a bid have been gaining intensity in the past few days, with Woolies, 1p higher at 34p, up more than 10% in the last fortnight.

Analysts suggest a number of private-equity houses may be preparing to strike while the shares are trading low in anticipation of a poor Christmas. However, on a more prosaic level, dealers suggest the parcel of shares related to hedge funds squaring their books.

Woolworths was not the only retailer on Merrill's card today. The broker was also selling 37m shares in struggling flatpack furniture company MFI at 82¼p. MFI, up 1¼p at 83¼p, has recently been forced to deny reports it is holding emergency funding talks with banks and has suffered from bear raiders betting the stock has further to fall in the run-up to Christmas.

After days of bid-fuelled climbs, the FTSE 100 paused for breath, retreating down 21.1 at 5439.8. The FTSE 250 posted a similar retreat, down 19.50 points at 7989.20. On Wall Street this afternoon, US shares opened flat, with Marvel Entertainment warning about results next year and a despondent mood taking hold.

The smile on Stuart Rose's face grew throughout the day as one after another the major brokers adjusted their recommendations for Marks & Spencer following yesterday's better-than-expected figures. Marks was the day's strongest performer, up 8p at 443½p as investors and shoppers flocked back to the store. Goldman Sachs has lifted its earnings per share estimates for M&S next year by 1% and by 2.5% for 2007 in anticipation of strong gross margins. It has also set a new target of 493p. UBS remains neutral on the stock, but revised its target upwards from 425p to 450p.

The positive view was echoed elsewhere. JPMorgan repeated its overweight stance, set a new target 20p higher at 470p and predicted a 'marked improvement' in full-price sales. Lehman Brothers set the most aggressive target, suggesting 505p was not unreasonable.

However, it was not a good day for AstraZeneca. The UK drugs giant fell 26p to 2569p after heavyweight stockbroker CSFB downgraded the shares to underperform from neutral, trimming the target price to 2500p from 2630p and advised clients to switch to GlaxoSmithKline instead.

The downgrade coincided with news that AstraZeneca has launched an undoubtedly costly lawsuit in the US against drug manufacturer Teva Pharmaceuticals over the Israeli firm's intention to make a generic version of Seroquel, the schizophrenia treatment that is worth more than £1bn a year to the UK giant.

Analysts note that in addition to the Seroquel litigation, Astra is fighting off three US patent challenges, with Nexium and Pulimcort also under attack. CFSB reckons these 'substantially boost the risks attached to the shares'.

It notes management has indicated spending on marketing and research and development is likely to increase in coming quarters. 'It is clear to us that the prospective rewards may not be as large as some had anticipated, while the risk attached to the shares has increased,' the broker says.

Talk that a large placing is being planned for telephone directories group Yell pushed the stock down 1¼p at 476p and offset positive updates from brokers including Morgan Stanley and Lehman Brothers.

The glittering debut by New Star ran out of steam today as the fund manager fell back 10½p to 266½p. That's still considerably higher than yesterday's 225p float price, a fact that will not have escaped New Star's recently enriched employee-shareholders.

Robert Wiseman Dairies slipped ¾p to 281¾p as the milk supplier warned that higher oil prices are significantly increasing the cost of packaging and passing these extra costs onto the consumer will be tricky. This had an immediate impact on rival Dairy Crest, down 2½p at 483p, which reports full-year profits tomorrow.

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