Market Report: Talk of disposals powers up National Grid

Word has it that the long-awaited sale of National Grid Transco's four regional gas distribution businesses is now imminent, and as the gossip spread through City dealing rooms yesterday traders piled into the utility's shares, which rose 8.25p to 463.75p.

Word has it that the long-awaited sale of National Grid Transco's four regional gas distribution businesses is now imminent, and as the gossip spread through City dealing rooms yesterday traders piled into the utility's shares, which rose 8.25p to 463.75p.

According to analysts, the deal could raise up to £5bn for the group, and the bulk of this cash is likely to be returned to shareholders via share buybacks and special dividends.

It is believed that Scottish & Southern Energy, United Utilities and ABN Amro Bank are the three remaining bidders fighting it out for control of the gas distribution businesses.

The excitement surrounding National Grid yesterday was stirred up by Merrill Lynch, which hinted that news of the disposals could come as earlier as next week. It believes that the deal will be welcomed by investors and so urged its clients to buy into National Grid, setting a 510p price target on the stock. Merrill is of the view that Centrica's recent sale of the AA offers a good precedent. Shares in the group performed very strongly in the wake of the deal, which saw a private equity consortium pay £1.7bn for the AA.

Meanwhile, the FTSE 100 index rose 36.2 points to 4,490.1 as investors shrugged off weaker than expected US economic growth figures. The FTSE 250 added 12.5 to 6,086.

Johnson Matthey improved 10.5p to 916.5p after Umicore, a Belgian company in pretty much the same business as JM, posted a strong set of interim results. Umicore also issued a bullish outlook statement, leading Credit Suisse First Boston to argue that if the Belgian group is doing well then so should JM. Umicore is the number three player in the autocatalysts industry, with a market share of around 20 per cent compared with JM's 30 per cent.

Smith & Nephew dropped 6p to 492p after Code Securities poured cold water on suggestions that the orthopaedics group is about to be bid for. In a note to clients, it pointed out that a move on S&N from one of its main US rivals, namely Johnson & Johnson, Stryker and Zimmer, is likely to raise objections from regulators. This we generally knew. But, more interestingly, Code believes that a bid for S&N from Biomet, a smaller American player unlikely to face opposition from regulators, is also not going to happen any time soon. The broker said that Biomet looked at tabling an offer for S&N some time ago and decided against it.

Abbey National improved 0.75p to 589.75p as Deutsche Bank was heard telling investors that there is a greater than 75 per cent chance of a counter bid for the mortgage bank from HBOS, unchanged at 685p. The German broker believes there is a high probability that such a move by HBOS will be approved by the competition commission and even argued that a further bid for Abbey, by Santander, cannot be discounted. Deutsche calculates that 650p a share is the best price Santander can offer to Abbey shareholders but that HBOS has the firepower to pay as much as 715p.

JD Wetherspoon held steady at 240p despite a warning from Citigroup that investors should "beware of current trading" at the pubs group. The American broker reckons that current City forecasts for JD Wetherspoon are simply too high given the tough trading environment the company is facing. The pubs group is due to post full year results next week.

Daily Mail and General Trust ticked 4.5p higher to 690p as it emerged that Paul Dacre, editor of the Daily Mail and an executive director at the trust, had bought £70,000 worth of shares. Mr Dacre's total shareholding in Daily Mail & General is now worth £1.6m. There was also director share buying at Laird Group, up 0.5p to 325.5p. Andrew Robb picked up 6,000 shares at 322p.

Dicom rose 6p to 673.5p on talk that next week's full year results from the software specialist are likely to excite. Word has it business continues to be strong at Dicom, which is among the few software companies which managed to avoid the downturn that has plagued the wider industry over the past few years. Bridgewell Securities forecasts earnings before interest, tax, depreciation and amortisation to rise to £12.8m from £11.8m and tips Dicom to unveil contract wins, particularly from the US.

Amstrad rose 7p to 194.5p amid talk that the company run by entrepreneur Alan Sugar has enjoyed strong trading over the past few months thanks to strong demand for its offering of digital set-top-boxes. Wyevale Garden Centres was not so lucky. It fell 9p to 329.5p on whispers that the poor summer weather has caused a further deterioration in sales at the group. Market professionals predict that sales over the last month are sharply down on those seen last year.

Finally, brokers tipped Mears, steady at 183.5p, to deliver some very impressive figures next week. The council support services specialist is expected to deliver a 34 per cent jump in pre-tax profits to £7m.