Market Report: Strong run for Cable & Wireless brought to a halt

Morgan Stanley yesterday called time on a recent strong run for Cable & Wireless via a bearish investment note on the alternative telecom carrier. The US broker certainly did not pull any punches as it told investors that the group's shares "look expensive on all valuation metrics" and urged them to be "underweight" in the stock. C&W duly fell 1.5p to 128.5p in response.

Morgan Stanley yesterday called time on a recent strong run for Cable & Wireless via a bearish investment note on the alternative telecom carrier. The US broker certainly did not pull any punches as it told investors that the group's shares "look expensive on all valuation metrics" and urged them to be "underweight" in the stock. C&W duly fell 1.5p to 128.5p in response.

Morgan Stanley admitted that C&W's results earlier this month revealed a better than expected performance by its UK division. But the broker warned that this positive is more than offset by a number of negatives including a deterioration in the performance of C&W's Caribbean division and evidence that the costs of the company's restructuring are higher than previously thought.

Even the group's well performing UK business looks to be overvalued by C&W's current share price, according to Morgan Stanley. It estimates that at 128.5p, the market is ascribing a value of over £1bn to the telecom group's UK assets. The broker argues they are worth less than half this.

Meanwhile, the blue chip index had a quiet end to the week. The FTSE 100 dropped 2.1 points to 4,484.0 in low volume, reflecting the closure of US markets for the funeral of former President Ronald Reagan. Royal & Sun Alliance achieved a 1.25p rise to 80.25p on speculation the insurer its close to the disposal of Trygg Hansa, its Swedish unit. Analysts estimate the sale could generate over £400m for RSA. In April the insurer said that it was reviewing the future of its Scandinavian holding. Next fell 15p to 1,415p after Merrill Lynch warned that the clothing giant faces stiff competition. It believes Next has been a major beneficiary of weak competition in the past but fears that all this is about to change as food retailers such as Asda and Tesco muscle in on its territory. Hence, Merrill cut its recommendation on Next to "neutral" from "buy".

Geest rose 11.5p to 575p after Icelandic group Bakkavor raised its stake in the foods company to 16.2 per cent. At the end of last month, the Icelandic group took a 10.3 per cent holding in Geest, sparking rumours that it may be about to bid for the whole company. Bakkavor, a rival to Geest, was quick to play down such talk. Market professionals believe the group is nevertheless keen to continue to add to its holding and is said to be keen to take its stake up to 25 per cent. The Icelandic group is significantly smaller than Geest. It has annual sales of £140m compared with Geest's £870m.

Takeover speculation boosted Tibbett & Britten, up 11p to 480p. Reports earlier in the week talked of a possible takeout price of 600p. But Arbuthnot Securities urged caution. It noted that a takeover would trigger various change of control clauses contained in many of T&B's contracts. These would allow customers to exit the contract they have with the company or renegotiate the terms and would greatly add to the risk faced by a potential buyer of the company.

Seymour Pierce moved investors into discount retailer Brown & Jackson, 1p higher to 62.5p, telling them that the group is enjoying strong trading. The broker also assured those willing to listen that the setback that B&J suffered at Christmas, which prompted a profits warning, had been one-off. Center Parcs is tipped to go higher next week after dealers cleared a large stock overhang from the market. Minco added 0.75p to 15.75p on talk that the explorer's Mexican silver project is starting to yield positive results.

Three smaller companies made their debut on the market. ITM Power, a hydrogen fuel-cell maker, raised £10m at 50p, in an oversubscribed offer to investors. ITM closed at 52.5p. Despite the float's apparent success, it is worth noting that back in April the company had hoped to raise £16m.

Meanwhile, ATH Resources, one of Britain's biggest coal miners, secured a £40m valuation via its float, which raised £12.5m. ATH shares were issued at 136p and closed at 138.5p. MultiMedia Television, which publishes job vacancies on TV pages, listed at 12p, but did not raise any fresh capital. Its shares closed at 13p.

And finally, it emerged yesterday that Peter Gyllenhammar, the Swedish value investor, has been busy buying back into European Colour, steady at 17p. Mr Gyllenhammar disclosed the purchase of 400,000 shares in the specialist manufacturer of organic pigments, taking his total holding to 4.6 per cent.

Last year he made a healthy profit from his share dealings in European Colour. The Swedish investors built up a 29 per cent stake in the company at the start of the year via his Jarvis Porter investment vehicle, paying up to 20p a share for the stake. He then sold it to Shelby Corporation, an investment group, for 28.5p. But since then the company's share price has slumped amid tough trading conditions. Earlier this week European Colour posted a loss of £3.1m and scrapped its final dividend.

MARKET MOVERS

Marks & Spencer 366p (up 7p, 1.9 per cent). The stock returns to highs last seen in the immediate aftermath of Philip Green's bid in May, in the hope that the entrepreneur returns with a better offer.

ITV 112.5p (up 2p, 1.8 per cent). Shrugs off a price target downgrade by UBS, which warned that the broadcaster's commercial audience share may be falling.

Abbey National 483.25p (up 3.75p, 0.8 per cent). Takeover speculation continues to drive the stock higher.

St Ives 385.25p (up 9.5p, 2.5 per cent). Vague talk of a bid continues to do the rounds of the City.

First Group 279.5p (up 5p, 1.8 per cent). Merrill Lynch tells investors to buy the stock after the company is named prefered bidder for the ScotRail franchise.

Ross Group 3.87p (up 1p, 34.8 per cent). Secures £300,000 satellite contract from Eads Astrium.

Prezzo 137p (up 13.5p, 10.9 per cent). Raises £9.3m via a placing of 7.7 million new shares at 120p and says it will use the cash to expand its chain of restaurants.

Planestation 6.9p (up 0.67p, 10.7 per cent). Artemis Fund Management declares a 4.8 per cent holding.

Whitbread 818p (down 11p, 1.3 per cent). Investors lock in profits from the stock's strong rise in advance of Tuesday's trading statement.

Close Brothers 775p (down 26.5p, 3.3 per cent). Caladonia Investments opts to sell down its holding in the merchant bank.

Manganese Bronze 195p (down 11.5p, 5.6 per cent). Investors continue to exit the stock after Thursday's profits warning from the taxi-maker.

Rentokil Initial 149p (down 3.5p, 2.3 per cent). Bid speculation wanes.

Anglo American 1,123p (down 11p, 0.9 per cent). An upgrade to "neutral" from "underweight" fails to buoy the stock.

Euromoney 367p (down 14p, 3.7 per cent). Investors worry that Daily Mail & General Trust may sell down its holding as it looks to buy the Telegraph.