Market Report: Centrica excites traders with plan to add phones to growing services list

THE GAS company Centrica piped a new hot rumour into the market yesterday with talk of a joint venture with telecom group Energis.

According to the gossip, the two companies are in talks over a project to use Energis's cable network and know-how to supply telephone services to Centrica's 15 million customers. The deal, which could be announced with the utility's interims tomorrow, will mark another stage in Centrica's metamorphosis from boring gas peddler to swish service provider.

Millions of customers can already buy their gas, electricity, credit cards and phone bills from the former British Gas offshoot. The almost certain acquisition of the Automobile Association, due to be approved in the next few weeks, will add road recovery to Centrica's sprawling empire and boost its customer database by another 9.5 million names.

A telephone deal with Energis could be the ideal way to provide these hungry consumers with a "household services one-stop shop" and move away from the low-margin, cyclical gas business.

Unfortunately, the news leak was not enough to push Centrica and Energis higher. The gas group finished 1p lower at 169.5p after hitting an all- time high on Monday, while the telecom company dropped 16p to 1,645p on a sector-wide sell-off. Its 51 per cent shareholder National Grid lost 1p to 413p.

An Energis/Centrica phone combo could prove a powerful rival for BT. The stock yesterday rang up a 34p loss to 952p on growing fears that the buyout of mobile phone operator Cellnet from partner Securicor, down 4.5p to 590p, could face opposition from the security group's shareholders.

Cellnet's rival Vodafone AirTouch shed 28p to 1,262p as optimism over a tie-up with US rival Bell started to fade.

Remaining blue-chips had nothing to phone home about. The FTSE 100 closed 66.2 points lower at 6,309.5 after a nervous session dominated by interest- rate fears on both sides of the pond. The start of the Bank of England's meeting, which today will decide on rates, focused traders' minds on the possibility of a near-term domestic hike.

At the same time a weak opening on Wall Street - despite news of a $80bn megamerger between media powerhouses CBS and Viacom - highlighted US investors' worries over their own monetary policy.

The midcap was also wobbly, ending its record-breaking run with a 19.8- point fall to 6,153.4. The Small Cap was once again the notable exception, rising 6 to an all-time high of 2,859.1 - its 17th consecutive winning close.

The drinks group Allied Domecq, up 8.5p to a record 367.5p, was prominent on the market's bid menu. The stocks soared for most of the day in huge volume before running into mild profit-taking as news that the top management of France's Pernod Ricard was in town revived takeover talk. The Canadian group Seagram, or even UK giant Diageo, up 9p at 629.5p, are two other potential bidders.

Sector peer Bass frothed 15p higher to 840p on talk of further deals after the purchase of Allied's pubs in tandem with Punch Taverns.

Media stocks were excited by the CBS-Viacom deal. TV group Carlton Communications surged 14.5p to 488.5p on hopes that the new US giant could acquire it in an effort to boost its UK presence. A Warburg push also helped. ONdigital partner Granada jumped 9p to 580.5p on similar whispers.

Carlton's jump could be enough to avoid relegation from the FTSE 100 after today's review. However, magazine publisher EMAP is set to drop out despite yesterday's 25p rise to 1056p on a Morgan Stanley "strong buy" upgrade and talk of interest from CBS-Viacom.

Relegation fears also grounded aerospace engineer Smiths Industries, down 37p to 933p. South African insurer Old Mutual, odds-on to enter the FTSE 100, slipped 1.5p after uninspiring maiden interims.

Banks were also active. Barclays firmed 14p to 1,844p on revived talk of a bid from US giant Citigroup, while NatWest cashed in a 22p rise to 1,156p as HSBC and Teather & Greenwood issued the first positive notes on the acquisition of Legal & General, up 0.25p to 202.25p amid continued talk of a counterbid.

Retailers Sainsbury, 12.75p lower to 433.25p, and Tesco, down 5.75p to 191.25p, were savaged by rumours of a bearish note from Merrill Lynch. The heavyweight US broker believes the two could be undone by a forthcoming price war.

Morrison Supermarkets, up 4.5p to 152.25p and Iceland, 21.5p better at 310p after good results, should do better.

Cleaning giant Rentokil Initial mopped up a 0.5p rise to 260.25p on whispers of a share buyback or a major buy such as Securicor or fire and locks specialist Williams. The latter dropped 31.5p to 345.5p after lukewarm results. However, most of the damage was done by the decision by shareholder Baille Gifford to dump its near 5-per-cent stake. The Scottish fund manager asked DKB to place over 30 million Williams shares at a cut-price 345p after being disappointed by the lack of news over a bid by US rival Tyco.

Mining group Billiton fell 0.25p on poor figures despite admitting bid approaches. Anglo American, up 41p to 3,507p on hopes of good results today, and Rio Tinto, down 14p at 1,145p, are two potential bidders.

Midcapper Medeva jumped 9p to 131.5p on renewed talk of a bid or a management buyout. British Biotech shot 4.25p higher to 41.5p after clinching a cancer drug deal worth up to pounds 36m with US drug giant Schering-Plough, while Peptide Therapeutics rose 5.5p to 48.5p on hopes of forthcoming good numbers and vague bid rumours.

Lara Croft game-maker Eidos rose a stunning 396p to 3,616p after Goldman Sachs slapped a 5,320p target on the stock.

Plant hire minnow Multi Equipment Rental climbed 2p to 25.75p after high- profile investor Jim Slater bought a 3.28 per cent stake. Border TV firmed 2.5p to 528.5p on hopes of a good annual statement today.

Recruiter HW Group soared 16.5p to 95p after unveiling a bid approach. Rival Lorien, down 4p to 107.5p, could reveal some corporate action. However, troubled credit-card security group Card Clear plunged 8p to 37p on bad figures.

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THE PRINTER and publisher, Goodhead, is attracting some speculative interest amid talk of a bid from millionaire chairman John Madejski. Followers of the Oxfordshire-based group believe Mr Madejski, the owner of Reading Football Club, is lining up an offer north of 60p for the 34.4 per cent stake in the company he does not own.

Goodhead shares rose 13.5p to 45.5p after the company more than doubled interim profits. Expected broker upgrades could provide further upside.

RUMOURS of high-profile arrivals supported two minnows. Ofex-traded video-conferencing specialist Motion Media surged 5p to 85p on talk that Colin Blackbourn had bought a stake of more than 3 per cent. The investor is said to be confident that Motion Media's innovative technology will help it win major contracts.

Water engineer Hydro International pumped 4p higher to 32.5p on rumours that James Dyson of the eponymous vacuum cleaner may join the board.