Market Report: BAe soars through rights price barrier

SHARES of British Aerospace enjoyed another soaraway session yesterday, climbing without a hint of turbulence through the 380p rights issue barrier, which had been expected to produce a round of selling.

In often brisk trading they climbed 17p to 387p, highest this year, and a far cry from the 113p touched in September when BAe's prospects looked exceedingly grim.

Suggestions of a pounds 4bn export boost prompted the latest advance, which could make BAe a candidate for a return to the FT-SE 100 share index when the June amendments are decided this week.

SG Warburg, the merchant bank that is said to have a deep-rooted reluctance to Footsie membership, and Wolseley, the building materials group, are regarded as the most likely recruits. Fisons, Kwik Save and Lasmo are seen as the possible casualties.

BAe lost its FT-SE 100 status when its shares fell to 113p. One of the four newcomers then was the Kwik Save supermarket chain, which has encountered selling pressure since hopes of a Hong Kong bid faded. The shares fell another 9p to 752p.

The aerospace group launched a pounds 432m rights issue at 380p a share in September 1991. It was the most embarrassing cash call flop ever experienced by a leading UK group, with shareholders taking up only 4.9 per cent of the shares, the rest sticking with the underwriters.

As BAe shares have recovered from their low the 380p level has achieved increasing significance. Many expected the price to have difficulty breaking through the rights barrier as unwanted shares, taken up by reluctant underwriters, came on to the market.

In the event it seems many of the loose BAe shares were sold at a loss as the price declined and underwriters who stuck with the shares are content to stay for the ride.

Under the direction of its new chairman, John Cahill, BAe has been reshaped. Assets have been sold as the management has striven to improve profits from the remaining businesses, including the Rover car group, which has made dramatic headway in the UK.

Brian Newman and his team at Henderson Crosthwaite were the first to draw attention to BAe's recovery attractions when the shares were a lowly 140p. The Henderson team are no longer rampant bulls - but they still rate the shares a rewarding buy.

The rest of the stock market made a firm start to the new account, although best levels were not always held. The FT-SE 100 index rose 14.9 points to 2,844.8, encouraged by vague hopes of lower interest rates and more surveys indicating the economic recovery remains in place.

But the predicted revival produced little comfort for Simon Engineering, down 9p at 37p. The shares were 142p earlier this year. Last month the group warned of first-half losses and the danger that banking covenants could be breached. Smith New Court was rumoured to be selling.

Jeyes, the disinfectant group, was another down the pan. The shares collapsed 122p to 317p following a profit warning.

RJB Mining suffered the expected new issue flop. Placed at 250p, the shares closed at 234p. A management buyout 14 months ago, the group hopes to buy some unwanted British Coal pits.

Utilities experienced contrasting fortunes. Waters showed the ravages of dividend payments with, for example, Thames down 22p at 471p. Regulatory influences also took their toll. Electricities were more relaxed, helped by PowerGen's results and its apparent determination to increase dividends.

Cadbury Schweppes, ahead of investment meetings, held at 445p. Unilever responded to the expected impact on ice-cream sales of the forecast long hot summer, advancing 10p to 1,026p. Bass was another hot weather beneficiary, up 16p to 462p.

Reports of yet another rights issue ruffled Trafalgar House, down 4p to 106p. BET, the business support group, had to contend with rumours that another dividend cut is contemplated, falling 4p to 111p.

Quality Software Products, one of the galloping high-tech new issues shaded to 517p. Analysts are due to meet the company later this week. The shares were placed in April at 380p.

The transatlantic interest in Sun Alliance pushed the shares another 4p higher to 354p. Other insurers were firm.

Vodafone Group, results today, improved 11p to 465.5p. American investors, in a few days, have lifted their ADR shareholdings from 18.55 to 19.13 per cent.

Barr & Wallace Arnold, the coach and hotel operator, attracted attention. But its shares are a notoriously tight market. The voters gained 37p to 495p and the more widely held non-voters 7p to 219p.

The account started brightly with the FT-SE 100 index up 14.9 points to 2,844.8 and the FT-SE 250 index 9.8 stronger at 3,184.9. Turnover was only 456 million shares with 28,163 bargains. Settlement day is 28 June. Goverment stocks were little changed.

Acorn Computers improved 9p to 105p on talk that its associate, Advance Risc Machines, could be floated in the US. Some speculate that Acorn's ARM interest could be valued at up to pounds 300m in any share sale. Acorn controls ARM, which has developed a new microchip with the US computer giant Apple. ARM is reported to be working on a new range of fraud- proof bank and credit cards.

US buyers have returned to Pittencrieff, which last month captured Aberdeen Petroleum afer a tense battle. In the past week the shares have climbed from 266p to 323p with a 10p gain yesterday. The Americans are tempted by Pittencrieff's mobile telephone operation which is to be floated in the US. The oil group should raise about dollars 50m. It will retain control of the communications business.