Market Report: Bright start goes up in tobacco smoke

ONCE again shares failed to hold early strength. At one time the FT- SE 100 index seemed intent on returning above 2,900 points, despite the Wellcome fall-out from the latest study of Retrovir (AZT).

Smoke signals from Philip Morris in New York destroyed the exuberance. Its profit warning and related decision to cut the price of its top- selling cigarette, Marlboro, sent shares of BAT Industries sliding 71.5p to 927.5p.

BAT embraces Brown & Williamson, the third-largest US cigarette group, which has a thriving business at the cheaper end of the market. The Philip Morris moves, which include price freezes on its other brands, will clearly erode BAT's margins.

The tobacco giant's shares have been strong and with many investors sitting on handsome profits were vulnerable to any signs of tougher trading conditions. Rothmans International, also involved in the US market, fell 18p to 657p.

The BAT share reaction represented a 7-point index fall. Wellcome's 51p retreat to 692p (after 658p) accounted for 3 points. With two constituents in sad decline the index finished the day 8.5 points down at 2,869.9.

Trading, in view of the travelling difficulties, was surprisingly strong with Seaq putting volume at 606 million shares. Much of the dealing related to tax-efficient bed-and- breakfast trading. With many dealers and fund managers staying at home, genuine investment business was thin.

The Queens Moat Houses debacle continued to create interest. Forte, which will report later in the account, held at 184p as NatWest Securities suggested it should cut its dividend.

The securities house is looking for a reduction from 7.16p to 2.25p. It said: 'Cashflow is insufficient to meet stated objectives and with real interest cover even tighter than at Queens Moat, some sort of refinancing is a distinct possibility later in the year with a dividend cut being a precursor to such a move'.

NatWest, which puts a sell sign over the shares, is looking for profits of pounds 36m, down from pounds 73m.

MB Caradon, the building materials group, edged ahead 2p to 320p following the sale of its 25.3 per cent interest in the can maker CarnaudMetalbox.

A French group, CGIP, took up some of the stock but most was acquired by SG Warburg and placed with institutional investors. MB collected pounds 473m from the sale. Warburg was rumoured to have placed the shares, or at least most of them, making an pounds 8m profit.

Other building material groups, anticipating takeover action from cash-rich MB, edged ahead. Hepworth rose 10p to 340p and Marley 2p to 124p.

Wellcome's sudden fall from grace, and price curbs by the US drugs group Eli Lilly, pushed Glaxo Holdings 11p lower to 579p.

But SmithKline Beecham continued to bask in the success of its analyst meetings, improving 15.5p to 422p.

Kingfisher led a firm retail sector higher, gaining 11p to 589p. Darty, the French electrical goods group that Kingfisher is buying in a pounds 500m deal, announced what was regarded as an encouraging sales advance. Other retailers improved on continuing signs of a sales revival.

Food retailers were a little firmer, although worries about competition from discount chains linger. There are also fears that supermarkets will find it increasingly difficult to pass on higher prices. Argyll Group rose 12p to 341p. However, Tesco, which is reporting next week, eased 5.5p to 233.5p. About pounds 584m against pounds 545m is expected.

Royal Bank of Scotland slipped 7p to 264p. Hoare Govett says the shares should be sold and suggests the pounds 1bn valuation of the Direct Line insurance offshoot is too generous. Owners Abroad held at 123p. Thomas Cook, the German-owned group, duly produced its 150p tender offer for 12.5 per cent of the shares. Cook already owns 8.9 per cent. The Cook tender and market buying in effect defeated the near- pounds 300m offer for Owners from its packaged holiday rival Airtours, unchanged at 295p.

BOC Group fell 18p to 720p on rumours of negative comments from UBS Phillips & Drew. The securities house is changing its name to UBS from Monday. The Phillips & Drew name has been part of the market since 1907.

Unigate, planning a flotation for its US restaurant business, rose 6p to 373p. The share sale should realise up to pounds 164m.

General Accident, the insurance group, which has been strong this week, finished 5p higher at 594p after topping 600p. The shares started the week at 565p. Institutional demand, banking on GenAcc's recovery gathering pace, is said to be responsible for the advance.

Huntleigh, the healthcare group, jumped 87p to 950p. Storm Group held at 9p. Gary Smith, chief executive, and Brian Larcher, executive vice-president, have departed following a decision to drop out of cartoon production and concentrate on merchandising. Two licensing deals are said to be imminent.

Euro Disney dropped 38p to 1,085p. Ladbroke Group's enhanced share dividend made little impact, leaving the shares unchanged at 176p.

A shake-up at Courtyard Leisure, the wine bar group where takeover rumours have often bubbled. Shareholders are being asked to pump in pounds 284,000 through an open offer at 10p a share. Ali Safa and Brian Chandler are subscribing for shares at 15p. They are expected to end up with up to 38 per cent of the capital. Mr Safa becomes chairman and Mr Chandler a director. The shares fell 1p to 13p.

Yet more changes on the shareholder register of Ticketing Group, the Keith Prowse agency group. Wembley has sold its remaining 61m shares (7.2 per cent). At one time it had more than 20 per cent. A Hong Kong entrepreneur, Clive Ng, has about 10 per cent and there are suggestions that more overseas investors, some with entertainment links, will get involved. The shares edged ahead to 2.5p.