Market Report: Granada plunges as hotel slowdown fear grips share traders

GRANADA CAST a bearish cloud on a see-sawing market yesterday as dealers fretted about a slowdown in its hotels business. The TV and leisure group was one of the day's worst performing blue chips, plunging more than 4 per cent - 23p - to 533p as whispers of imminent downgrades prompted the sellers to check into the stock.

The City's trading rooms were awash with rumours that the Coronation Street-to-Posthouse company had delivered bad news to sector analysts. Granada is believed to have held a series of meetings with industry experts before its close period and the overall message seems to have been negative.

The Granada bears were growling that the company has been hit by a slowdown in its London hotels in the third quarter as the tourist flow dried up and rival Thistle Hotels, up 3p to 171p, cut its room prices.

The rest of the division, which includes the Posthouse and Meridien chain, was said to have put in a sluggish performance.

Concerns about the hotel division compounded recent worries about OnDigital, the digital TV venture co-owned with Carlton. The twin worries were enough to trigger speculation that Granada might not meet the market's forecast of pounds 803m pre-exceptional profits for 1999. Traders are expecting a few brokers to reduce their predictions, although the feeling is that the company will still outstrip last year's pounds 735m profit.

Not everyone was in the bear camp. A few houses, including Lehman Brothers and Merrill Lynch, told clients to buy the stock, but their support did little to stem the Granada slide.

To add insult to injury. Granada's OnDigital co-owner Carlton rose 13p to 444.75p on continued rumours of a deal with Canal+, disposals of non- core businesses and a Merrill Lynch push.

The FTSE 100 ended as flat as yesterday's pint at the Rovers Return, rising a mere 13.4 to 6,020.6. The modest closing rise belied a volatile session, which saw the leading index swing in a 135-point-arc. Once again, the Dow dominated proceedings. Fears of a weak opening in the US index drove our domestic market lower in the early afternoon. But the losses were reversed when Wall Street started higher and held on to its lead until the London close. The more insular second liners did not benefit from the US strength and underperformed. The FTSE 250 closed 2.5 lower at 5,670.4, while the Small Cap dropped 1.5 to 2,679.6. Trading was thin with the big players reluctant to take risks ahead of next week's rate decisions.

Halifax was one of the few banks to survive the latest bout of profit- taking. The Yorkshire lender ended 23p higher at 748.5p amid talk of big buying orders being pushed through by Goldman Sachs. Dealers were speculating that some knowledgeable buyers are buying the stock on hopes of a deal.

Some of Halifax's potential targets took a pasting. Insurer Legal & General dropped 8.25p to 172.25p as the prospect of a takeover from National Westminster, 28p lower to 1,423p, continued to fade. Rival Norwich Union dropped 19.25p to 441.5p on receding bid hopes. United Assurance fell 6p to 370p despite talk that it had asked bank Warburg Dillon Read to explore a merger with a rival, possibly Britannic, 1p lower at 1,030p. Bank of Scotland shed 21.5p to 724p despite better-than-expected interims on fears that its bid for NatWest will not suceed.

BP Amoco flared 27p higher to 1,092p on rumours it will gain full control of its European joint venture with US rival Mobil. Thames Water flowed 26p higher to 937.5p on vague bid talk.

The South African blue chips were well-bid. South African Breweries frothed 18.5p higher to 498p after the removal of a stock overhang, while insurer Old Mutual firmed 4.5p to 130.5p after its 52-per-cent owned South African bank Nedcor unveiled a merger with larger rival SBIC.

The Independent's story on Richard Branson's interest in buying a 5 per cent stake in British Airways if the price falls below 300p lifted BA 6.5p higher to 331.25p. Supermarket giant Tesco bagged a 3.75p rise to 192.5p in large volume as analysts warmed to its international strategy. However, drinks giant Allied Domecq lost 5p to 348.75p amid whispers that legendary investor Warren Buffet had reduced its stake.

Engineer Cookson starred in the midcap, rising 22p to 212p on rumours of a management buyout and an ABN Amro upgrade. Pump-maker Weir sloshed 10.5p up to 282.5p on vague bid talk, just like oil explorer Lasmo, 4.75p better at 135p, and bus group Arriva, up 12p to 349p. Old rumours of a bid sent United Biscuits 5.5p higher to 184.5p.

No such luck for Peel Holdings. The property group plunged 48.5p to 604p after announcing the collapse of MBO talks. Magazine group Emap shed 52p to 826p after a lacklustre trading statement.

Among the minnows, Voyager 2000 is expected to come back from suspension today after the reverse takeover of the Irish medical software group IMS. AIM-listed Independent Energy soared 60p to a record 1,030p after it increased the size of a 960p share offering. The oil driller plans to move to the main list and index funds are buying on hopes of an inclusion in the midcap.

Electronics tiddler Feedback surged 6p to 65.5p on talk of a contract win, while biotech group Phytopharm jumped 11p to 240p on talk of a large licensing deal. Optical group Gooch & Housego dispelled fears of poor trading and rose 25p to 89p. But chemical group Meristem shed 5.5p to 21p after a profits warning.

SEAQ VOLUME: 901

SEAQ TRADES: 65,762

Gilts: 102.49 -0.28

VODAFONE AIRTOUCH outraged punters yesterday after confirming plans for a huge euro bond and announcing an institutional roadshow. Investors spotted that directors exercised some of their share options netting more than pounds 400,000 yesterday. Stock market rules say directors cannot trade in their company's shares before a price-sensitive announcement. The company said it did not regard the statement as price sensitive.

NEIL MCCLURE is a busy man. The boss of windscreen group Silver Shield and Swansea Football Club is today expected to float a new web company on the AIM market. Property Internet - formed to invest in private companies involved in web-based property business - should start trading at a premium to the 25p offer price, giving it a market value of pounds 2m. Mr McClure will be chairman of the new company.