Market Report: Supermarkets backtrack on recent recovery

WORRIES about profit margins returned to haunt supermarket shares. There had been signs that the stock market's poorest-performing sector was over the worst and about to stage a determined recovery.

But as the market weakened, the sellers appeared and much of the recent progress was wiped out.

Argyll, the Safeway chain, fell 8p to 280p; J Sainsbury 13.5p to 435p; and Tesco 9p to 211p.

Fears that the fat margins of recent years are being squeezed sharply as competition intensifies have created the anxiety which has, for example, cut Tesco from 272p this year.

Their discomfort has occurred as shares have surged to new peaks in often hectic trading.

Competition from new-style warehouses, the rapid advance of the discounters and the stampede by the supermarket groups to open out-of-town stores have combined, together with low inflation, to end the lucrative days of rip-roaring profit progress.

But, for once, the supermarketeers were not out of step with the rest of the market. After four days of record progress the FT-SE 100 index dipped 22.5 points to 3,342.4. Even so, the record habit did not completely disappear; in early dealings the index was pushed to a new trading peak.

The supporting FT-SE 250 index, hitting new highs for the past seven trading days, turned negative, down 3.5 at 3,706.9.

After the heroics a correction was, of course, inevitable. There was determined profit taking in the futures and cash markets. Many market makers, still desperately short of stock, were happy to see prices pulled back.

The US house Goldman Sachs probably contributed to the reverse. It undertook a buy programme, estimated to be up to pounds 300m. But much of the activity, probably closely linked to the futures market, took place on Monday.

The market undertone stayed firm. Interest rate cuts remain the tantalising prospect which, together with the perceived economic recovery, continue to dominate market thinking.

The shake-up at British Gas was seen as heralding the arrival of a tougher regulatory regime for the utilities, and the relentless advance, which had been based on dividend considerations, came to an abrupt halt.

British Gas fell 10p to 247p; waters sank with Thames off 16p at 580p; and among electricities Yorkshire fell 12p to 675p.

British Aerospace, at one time up 10p, ended with a 5p gain at 406p. On Monday SG Warburg offered support and yesterday Kleinwort Benson added its weight.

On the banking pitch, Standard Chartered survived in some style the latest developments in the long-running Bombay share scandal. At one time down to 1,162p Standard ended at 1,179p, off 15p.

James Capel injected interest into the sector by pondering the possibility of corporate activity next year. But TSB Group, the favoured banking bid target, fell 4p to 253p following its decision not to sell its Hill Samuel merchant banking offshoot.

HSBC, reflecting a more subdued Hong Kong market, gave up 14p to 865p.

Hanson was ruffled by US stories that it planned to bid for Borden, a heavily borrowed transatlantic group. The shares fell 4.25p to 263.25p as the market feared any takeover would be financed by a cash call.

Borden has sold various operations in recent years, including a snack food business to Dalgety. It could, it is thought, be talking to Hanson about the sale of some of its chemical interests.

Chelsfield, the property group, made an impressive debut. Placed at 155p the shares closed at 180p. Securitised Endowment Contracts, offered at 60p, traded at 62p.

Perkins Foods, hit by profit warnings, reflected a Societe Generale Strauss Turnbull buy recommendation. Analyst Carl Short suggested the fall was overdone. The shares rose 2.5p to 62.5p.

Hillsdown Holdings, the food group, strengthened 3p to 160p with NatWest Securities complaining that the market was taking too pessimistic a view.

Betterware, the direct-selling group, recovered an early fall, closing up 3p at 135p after posting a near 15.6 per cent sales advance.

Friendly Hotels, a narrow market, jumped 12p to 165p and Bristol Scotts, the restaurant and stadium group, slipped 2p to 118p as the shareholder revolt appeared to have been resolved by the appointment of Ian Stevens and Sir Ian Rankin as directors.

Carlisle, the property services group, rose 1.5p to 26p. Investor Nigel Wray is expected to take a stake. Flextech, said to be on the verge of taking over the European operations of US giant TeleCommunications, spurted 40p to 553p.

National Home Loans convertibles gained 1.5p to 30p on talk of a reorganisation. The shares dipped 0.25p to 9p.

The headlong advance was halted, with the FT-SE 100 index down 22.5 points at 3,342.4 and the FT-SE 250 index off 3.5 to 3,706.9. Turnover was 756.1 million with 34,296 deals. The account ends on 31 December and settlement is on 10 January.

Rodime, a pure litigation play, climbed 3p to 24.5p, a two-day gain of 5.75p. The group produced the first computer disk drive but has since ceased manufacturing. It is now near to going to court, claiming its patent was infringed and seeking compensation. If it is successful, there could be rich rewards for shareholders. But if it fails there will be little, if anything, left.

Dealings should start tomorrow in shares of Rossmont, a maker and supplier of washroom facilities. Stockbroker Keith Bayley Rogers placed shares, representing 88.7 per cent of the capital, at 10p. Profits in the year to June were pounds 205,360. Orders are down on last year but inquiry rates are described as 'encouraging' and a 'satisfactory outcome' is expected for this year.