Market report: Friday close

By TOM NICHOLLS
Updated:

 

Stagecoach's earnings from South West Trains are set to slump by about 70% after the Government demanded the company double its excess profits payments to the Treasury.

After it was announced that it had retained London's busiest commuter service in and out of Waterloo for another 10 years, Stagecoach, off 2¾p at 126p, said it expects to make annual operating profits from SWT of between £15m and £20m, after paying back £1.19bn to the Treasury over the life of the franchise.

That is compared with SWT's retained profits last year of £59m after a payment of £66m to the Treasury.

Stagecoach finance director Martin Griffiths admitted that the Department for Transport had played hard ball as it looked at competing bids from Arriva, FirstGroup and National Express with Hong Kong's MTR.

'We have had two hard weeks of negotiation,' he said. 'It was very competitive.'

Shares in Stagecoach have risen 20% in recent weeks on hopes of a new SWT deal. However, Panmure Gordon, which estimates the franchise could add £150m to the firm's value, downgraded the shares to hold, but raised its target 10p to 135p. Investec kept its buy recommendation, focusing on the prospects for cash returns to shareholders.

The FTSE 100 index was under pressure, falling 74.4 to 5822.3 in the wake of an 80-point loss on the Dow yesterday, which wobbled on fears of slowdown in the US economy.

Wm Morrison, tumbling 7¼p to 244¼p, led the Footsie fallers, reversing yesterday's stellar rally, in which the shares climbed to their highest since the company bought Safeway two-and -a-half years ago. Brokers have since sounded a note of caution.

Kepler, Teather & Greenwood Merrion says Morrison, while improving, still looks expensive. It has a target of 187p. Morrison may be ahead of its targets, but 'much remains to be done', it says. Panmure agrees and has a sell recommendation with a 150p target.

Sainsbury's shares have also risen too far, says Panmure, which has a target of 320p and a sell recommendation. The shares fell 5¼p to 381¾p.

Carphone Warehouse is limbering up for an assault on the high-growth US mobile phones market. The firm is understood to be planning stores in New York in a joint venture with US electronics retailer Best Buy.

Even though the US has proved a tricky market for UK companies to break into, the retailer hopes the quality of the advice it doles out to customers and the fact that, unlike most existing US mobile phone retailers it offers contracts with a choice of operators, will give it the edge. However, the shares eased 3p to 303p.

Rolls-Royce was down 9¾p at 442p despite news the US will fund a back-up engine for Lockheed Martin's Joint Strike Fighter, which will be made by the UK company and General Electric.

British Energy has been under pressure all week and fell a further 9p to 559½p today. But Collins Stewart analyst Lakis Athanasiou, who a fortnight ago predicted the recent dive in the stock, says the sell-off is overdone.

He has revised his target down to 630p from 670p but rates the stock a buy, not least because of the chances of a 57p dividend for this year, the first payout since near-bankruptcy four years ago.

Transense Technologies soared 4p to 75p after signing a licensing deal with US automotive industry supplier Lear over its batteryless tyre-pressure monitoring system. Company sources claimed the deal could be worth $20m (£10.5m) a year in royalties. Argentina-focused copper and silver miner Alexander Mining rose ¾p to 22¾p on the back of a bullish interim statement.

PetroCeltic fell 1¼p to 13.50p amid rumours that it has drilled a dry well. However, industry sources suggested that the firm, which has operations offshore Ireland, in North Africa and Italy, may have in fact struck oil.

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