Market Report: British Energy tumbles on outlook fears

Investors were unnerved to see electricity prices fall to a two-month low, and a suggestion by Citigroup that they are set for a further drop made things worse.

The US broker slapped a "sell" rating on the stock and argued that it should trade closer to 370p. It believes there is a 96 per cent correlation between the price of electricity and the performance of BE shares. It also takes the view that UK electricity prices are too high when compared with those on the Continent.

The prices stand between 50 and 70 per cent higher than those in Europe, and Citigroup expects them to tumble this year, unless the UK suffers a particularly cold winter.

Since completing its financial restructuring at the start of the year, BE shares have soared to a high of 447p this month. In February, they stood at just 240p.

But BE was not the only power company under pressure yesterday. International Power dropped 3.75p to 206.25p, while Scottish Power retreated 0.5p to 508.5p.

Elsewhere, Compass roared 11.5p higher to 252.5p on rumours the catering giant could be the first target for Sir Gerry Robinson's newly formed bid vehicle.

Raphoe Management is said to be eyeing an underperforming FTSE 100 company and, after a series of profits warnings, Compass fits that category. Sir Gerry knows the company well as he led the buyout of Compass from Grand Metropolitan in 1987 and was more recently involved with the demerger of the business from Granada.

Compass is no stranger to rumours of a private-equity bid, but brokers are sceptical of a move on the company from Sir Gerry's Raphoe Management. Dresdner Kleinwort Wasserstein said: "We take the view that Raphoe would struggle to achieve much more than is already in train or currently being considered by the board. DKW also said it was sceptical that the buyout firm would be able to structure a deal so as to make it desirable to Compassshareholders.

Although the German broker concedes that Sir Gerry may be a more popular choice as chief executive of Compass than Mike Bailey, the incumbent, it argued that appointing him to lead Compass under the current ownership structure would be a far cleaner option.

Exel jumped 13.5p to 937.5p as a fresh version of the old story surrounded the logistics group. Gossips suggested that the Swiss player Kuehne & Nagel might be interested in acquiring the group. Up to now, Deutsche Post was widely tipped as the most likely bidder for the company. However, a spokesperson for the Swiss group denied the speculation.

Shire Pharmaceuticals rose 5p to 664p as a group of investors led by Wall Street legend Carl Icahn made public their opposition to the proposed merger between Shire and TKT of the US. The Icahn-led consortium controls 5.1 per cent of the Nasdaq-listed biotech, and takes the total number of investors opposed to the Shire/ TKT tie-up to 21 per cent of the American company's shareholder base. Analysts fear that Shire may have to up its offer for TKT.

In a quiet end to the week, the FTSE 100 index rose 20 points to 5,241 while the FTSE 250 gained 28 to 7,495. Colt Telecom was unchanged at 63.25p, despite a downgrade by Citigroup to "sell" from "hold". The broker said it was worried about growth at the telecoms group after its interim results this week.

Citigroup warned: "While growth has begun to accelerate in the first half of the year, it is still lagging the run rate necessary to hit our full year expectations."

The broker believes recent excitement about merger and acquisition activity in the sector has left Colt looking overvalued.

Lower down the pecking order, Sierra Leone Diamonds, steady at 54p, saw Francesco Scolaro, a director at the mining group, acquire 100,000 shares at 56p. The purchase comes hot on the heels of the purchase of 500,000 shares at 53.75p by Frank Timis, the company's chairman.

Accident Exchange, which has seen its shares rise six-fold over the past 12 months, gained a further 15p to 315p after the purchase of 10,000 shares at 303p by David Galloway, the company's deputy chairman. Meanwhile, Lo-Q roared 3.75p higher to 8.75p amid talk of strong demand for the company's queuing technology. Lo-Q sells the technology to theme parks and is rumoured to be heading fast towards profitability. Sales of its Q-Bot product are reported to be up by as much as 50 per cent over the past year.