Market Report: Rumours of cash call from ICI dominate

THE possibility of a pounds 1bn cash call from Imperial Chemical Industries again dominated trading yesterday.

The stock market has become increasingly convinced that ICI will accompany today's yearly results with a rights issue as part of the signalled Zeneca demerger.

At one time the shares were down 26p to their lowest level this year. Then, in busy trading, a recovery set in and by the close the price had reached 1,082p, a gain of 8p.

The revival stemmed from indications that the rights will be heavily discounted. Suggested terms included one-for-four at 585p and one-for-five at 700p. There was also talk of a staggered call.

ICI has not yet committed itself to splitting into two. But the market, after the high-profile ICI campaign, is convinced it will decide to go ahead with setting free the Zeneca drugs division, which is already operating as an independent business, as soon as possible, perhaps in the spring. As Smith New Court observes, that 'means a rights issue to raise pounds 1bn as part of the demerger process'.

Sir Denys Henderson, ICI chairman, and his co-directors were locked in boardroom meetings, wrestling with the Zeneca question. They are expected to meet again today.

The group's profits have already been discounted. They will be appalling, with some suggesting they could be down to pounds 525m against last year's depressed pounds 843m. In 1989 ICI achieved a peak pounds 1.53bn.

But the UK's favourite bellwether stock did not have the rumour field to itself. Kwik Save, the supermarket chain, created a swirl of interest as the story went round that Dairy Farm, the Hong Kong food retailer, had picked up another chunk of the capital and was now nudging the 30 per cent mark.

There was no indication of any new Dairy Farm buying but with the market convinced a bid will come sooner rather than later the shares rose 14p to 842p after touching an 846p peak.

The Hong Kong group has picked up small parcels of shares in the past few months at around 800p, pushing its interest to 28.06 per cent.

With Hong Kong being set to be absorbed by China in 1997 the market is convinced more colony businesses will follow the example of HSBC, the banking group, by buying a London-quoted company to acquire UK residence. HSBC took over Midland Bank last year.

Allied-Lyons, the food and drink group, fell 5p to 590p as it became the latest victim of a profit downgrading. Barclays de Zoete Wedd did the damage. It cut from pounds 620m to pounds 608m for this year and from pounds 734m to pounds 696m for next.

But British Steel drew some comfort from an analysts' visit to its Scunthorpe operations. The shares firmed 1.5p to 76.5p. Carr Kitcat & Aitken described it as 'a recovery buy', suggesting it will break even next year.

BAA, the airports group, slipped 13p to 772p as Kleinwort Benson made cautious noises; Kleinwort also turned negative on Blue Circle Industries, driving the shares down 7p to 225p.

British Aerospace responded to the biggest UK corporate loss with a 13p gain to 265p.

Office equipment shares were rattled by the threat of an Office of Fair Trading investigation. Southern Business Group tumbled 34p to 79p; Danka Business Systems 10p to 630p and Gestetner 11.5p to 131p.

The Government clearance of the Airtours offer for Owners Abroad had the market dreaming of much-improved bid terms. Owners jumped 13p to 129p; Airtours rose 5p to 302p.

The insurance group Guardian Royal Exchange rose 6p to 186p as a buyer sought and obtained a 5 million line. Royal Insurance, results with or without a rights issue today, slipped 2p to 285p.

English China Clays dipped 13p to 439p, ruffled by vague talk of margin pressure in the US. Results are due next month.

Mildly optimistic comments from NatWest Securities made little impact on property shares. But Hammerson continued its intriguing progress. The ordinary shares rose another 5p to 335p and the low voting shares 6p to 322p. Talk persists that Hammerson's biggest shareholder, Standard Life Assurance, has been approached to sell its 31.44 per cent stake. British Land, down 4p to 226p, is said to be the interested party.

Hotel shares failed to draw any encouragement from Kleinwort's yearly survey of the industry. Investors, it said, should take the long-term view 'rather than getting entangled in the erratic and confusing short-term developments which we expect to characterise the hotel markets as the year progresses'.

Hartstone, the hosiery and leather group built up by Stephen Barker, appeared to be the subject of a bear raid, falling 20p to 250p. Trading was occasionally brisk with some largish lines of stock going through. The shares were active on Tuesday when much of an early fall was recovered.

Rumours of profit downgradings and management changes are circulating.

The FT-SE 100 index moved narrowly yesterday in quiet trading. It closed down one point at 2,817 after moving between a 3.7 gain and 7.9 loss. The FT-SE 250 index was lowered 7.2 to 3,029.9. Trading volume was 592.7 million shares with 27,383 bargains. Government stocks gave ground.

Problems at Leyland DAF should not distract from the attractions of Mayflower Corporation, a specialist engineer centred on the truck industry, Smith New Court says. Leyland accounts for 14 per cent of Mayflower's sales. SNC sees a continuing recovery with last year's profits climbing nearly pounds 2m to pounds 3m. It expects pounds 5m this year. The shares are 40.5p.

Shares of Inoco came to life yesterday as some took the view that the oil-turned-property group could be back in the black. The group, which lost more than pounds 12m in three years, is due to report on 1992 tomorrow. Inoco is controlled by David Rowland, who found fame as a corporate activist in the late 1960s. It last paid a dividend in 1989 when the shares reached 43p.