Market Report: Tesco boosted by talk of Carrefour merger

Tesco was the talk of the Square Mile yesterday with investors not only eagerly awaiting today's third quarter figures from the supermarket giant, but also talking of a possible merger with France's Carrefour. Where this speculation came from was unclear but most City analysts dismissed the theory.

Tesco was the talk of the Square Mile yesterday with investors not only eagerly awaiting today's third quarter figures from the supermarket giant, but also talking of a possible merger with France's Carrefour. Where this speculation came from was unclear but most City analysts dismissed the theory.

Although such an alliance would create a major global rival to Wal-Mart, the world's biggest retailer, analysts highlighted the numerous regulatory complexities that such a deal would raise in France and also warned that the cultural differences between the two companies were likely to prove a significant obstacle to any tie-up.

The consensus among those who know the food retail sector well is that Tesco is already doing a great job of combating Wal-Mart in the UK. Recent industry data has shown that Asda is losing market share to Tesco and this should help the group come up with another set of very impressive figures today. Merrill Lynch tipped Tesco's Q3 update to boast another quarter of spectacular like-for-like sales growth and this helped its stock finish 2p better at 298p.

Elsewhere, Merrill Lynch was not so keen on Big Food Group, down 0.5p at 88p. Downgrading its rating of the stock to an outright "sell", the US broker cut its profit forecasts on BFG by nearly 10 per cent for the second half of the year. Merrill warned that Baugur was likely to reduce its 110p-a-share indicative offer price for the group. According to reports late yesterday, Baugur has pretty much finished its audit of BFG without finding any problems and is keen to push ahead with an offer. What price the Icelandic group is willing to pay, only time will tell.

Photo-Me gained 5.25p to 93.5p after the digital photo processing specialist held meetings with institutional investors. Enodis jumped 8.5p to 102p as Citigroup hiked its rating to "buy" from "hold" following Tuesday's strong results. The US broker praised Enodis' recent debt-reduction drive, the success of which has exceeded Citigroup expectations.

According to Bridgewell Securities, business is ticking over nicely at Carillion, up 6.5p to 224.75p. Returning from a meeting with the construction group's management team, the broker said: "Management indicated to us that the PFI secondary market is developing strongly." About 50 per cent of its profits are generated by the public sector.

Profit taking left TT Electronics 13p lower at 199p. Brokers said it was no surprise to see investors locking in gains from the stock. Since the start of the month TT shares have surged by nearly one-third on expectations that they will be promoted to the FTSE 250 next month.

EasyJet ticked 1p higher to 186.5p after ABN Amro drew the attention of its clients to a string of positive industry developments for the budget airline. The most important of these is the recent retrenchment by some of EasyJet's rivals, with the most drastic of these being the outright collapse of players such as Vbird and Volare. ABN also raised the possibility that Icelandair may one day decide to take full control of the group.

Umbro put on 5p to 99.5p as the football shirt maker assured analysts at a site visit that all is going to plan across its business. Intelligent Environments ticked 0.37p better to 5.87p on news of a contract win from a major banking group worth £500,000 to the company over the next 12 months. Things seem to be going well at IE at the moment. Only last week the software group unveiled a series of business wins worth £400,000.

African Eagle put on 6.75p to 25.5p after finding high-grade gold at its Miyabi project in Tanzania. Likewise, Minmet, up 0.5p to 3.35p, boasted good drilling results from its site in north Sweden. Southern African Resources continued it surge, gaining 2.5p to 42.25p, as brokers reported solid demand for the stock from institutions.

Applied Optical, 3.5p higher at 23p, was boosted by a series of director share purchases. David Mahon, the group's chairman, picked up 45,000 shares at 20.5p while Michael Angus, its finance director, acquired a more modest 30,000 at the same price. Earlier this month, Applied indicated that it plans to exit a number of loss-making businesses in Europe.

Caledon Resources added 0.75p to 5.75p on whispers that the mining group will soon issue some very impressive drilling results from China. The news could come as soon as tomorrow, gossips say.

Finally, punters should keep an eye out for Ceres Power today. Brokers expect the fuel cell specialist to make a strong debut on the market. Ceres hopes to raise about £20m at 120p, and the hedge fund, RAB Capital, is said to have picked up a 7 per cent stake.

Market movers

↑ Euromoney 417p (up 55p, 15.2 per cent). Posts a set of forecast-busting full-year results.

↑ TBI 91.25p (up 2p, 2.2 per cent). Spain's Abertis bids 92.5p a share for the airports group, valuing it at £555m.

↑ Amlin 153.5p (up 3.25p, 2.2 per cent). Raises $50m via a debt issue.

↑ Earthport 2.07p (up 1p, 93.5 per cent). A deal with Global Invoice Corporation excites.

↑ Raft International 8.75p (up 1p, 12.9 per cent). The risk management software specialist announces a contract for its Raft Radar product.

↑ Redbus Interhouse 15p (up 1.25p, 9.1 per cent). Settles a legal dispute with a landlord in Luxembourg.

↑ MyTravel 4.25p (up 0.35p, 8.9 per cent). Says it has received approval for its restructuring from the High Court.

↑ Marylebone Warwick Balfour 66.75p (up 0.75p, 1.1 per cent). The group's serviced office unit signs a deal with Citigroup.

↑ Computer Software Group 61.5p (up 4p, 7.0 per cent). Breaks into the black at the interim stage.

↓ Tomkins 252p (down 16p, 5.9 per cent). Investors worry about the impact of the falling dollar on the group.

↓ Northern Rock 705p (down 20p, 2.7 per cent). Credit Suisse First Boston downgrades the mortgage bank to "neutral" from "outperform".

↓ AstraZeneca 2,099p (down 46p, 2.1 per cent). Citigroup cuts its rating to "hold" from "buy".

↓ HSBC 895p (down 17.5p, 1.9 per cent). Morgan Stanley downgrades its forecasts as it frets about the performance of the group's US division.

↓ ICAP 246.25p (down 9p, 3.5 per cent). Interim results from the money broker disappoint.

↓ BetonSport 77.5p (down 83p, 51.7 per cent). Warns that its full-year results will not meet expectations.

↓ Abbeycrest 61.5p (down 14p, 18.5 per cent). First-half losses widen to £2.6m from £1.1m a year earlier.

↓ Gladstone 23.25p (down 2.75p, 10.6 per cent). Profit-taking after strong annual results from the software specialist.