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Tate sours but Smiths surprises

This article is more than 17 years old

A mixed bag of trading statements left the market struggling for direction until a late rally from the miners came to the rescue.

Tate & Lyle and LogicaCMG were the big losers after they updated shareholders, but WH Smith's Christmas performance received a rather better reception.

Sugar and sweetener group Tate slumped 112p to 608p - a 15.5% drop - as it issued a profit warning. It said results would be "modestly" below forecasts, mainly due to lower-than-expected sales of its zero calorie sweetener Splenda Sucralose in the US. This caught the market on the hop, albeit that last week Credit Suisse highlighted concerns that the Sucralose business would not grow as rapidly as had been anticipated.

Today analysts were busy chopping their profit forecasts by around 5%, with Citigroup reducing its recommendation from buy to hold and cutting its price target from 900p to 700p. "Management's previous bullishness was misplaced," said Citigroup tartly. "Recent reports of private equity interest [in Tate] will hopefully help to cushion what is going to be a materially negative share price reaction." There was certainly a negative reaction, but so far not much sign of a cushion, even though two Tate directors bought shares this morning. Chief executive Iain Ferguson bought 16,428 shares at 608.75p, as did chief operating officer Stanley Musesengwa.

The Tate news dragged down other food companies, with Cadbury Schweppes 4p lower at 554p and Unilever 15p down at £13.84. Unilever was also hit by a negative note from Credit Suisse, which cut its rating from neutral to underperform, with a £13 target price. "The shares have gone beyond what we regard as a reasonable reflection of the turnaround possibilities," said Credit Suisse.

As for LogicaCMG, the computer services company fell 9.25p to 173.5p after it said its margins had increased in 2006, but its overall growth rate disappointed the market. Credit Suisse reduced its target price from 200p to 190p while Citigroup was again fairly ratty: "After management's upbeat presentation in December, we are surprised the business appears to have slowed in the second half of 2006."

"The market is stuck in a bit of a rut at the moment and any negative news does not get taken well," said one trader.

Newsagent and bookselling group WH Smith was an exception. It added 21p to 395p despite saying like for like sales at its high street business fell 9% in the 20 weeks to January 20. Total like-for-like sales fell 6%. However, it said margins had improved, and this was enough to save the shares.

Elsewhere sterling hit a 14-year high against a weakening dollar ahead of tomorrow's key Bank of England minutes - relating to this month's meeting when rates were unexpectedly raised - while oil prices, gold and nickel all moved higher. The firmer metals prices lifted BHP Billiton 22p to 939p and Rio Tinto 85p to £26.60.

So, after being in the red for most of the day, by the close the FTSE 100 was 9.2 points higher at 6227.6. However the FTSE 250 index of middle-ranking companies failed to recover, falling 64.4 points to 11,102.2.

There was a late burst of excitement in gas giant BG, up 11p to 662.5p on rumours of a possible bid from BP, up 4p to 545p. Some traders said BP's Lord Browne might see such a takeover as a fitting legacy before his imminent departure, having apparently failed last year in an attempt to effect a merger with Shell. There were a few hefty trades going through for BG towards the end of the day, but most dealers were cautious on the tale.

But Dana Petroleum lost 21p to £10.67 after reporting that the Pomboo-1 exploration well off Kenya - where it has a 30% stake - was found to be dry and would be plugged. Oriel Securites put out a reduce recommendation on the company, saying: "The shares are trading at a significant premium to our core net asset value and, on this basis, look expensive relative to the sector. The disappointing Pomboo drilling result will dent the potential upside the market sees in Dana and may lead to a re-evaluation of the value of other international prospects."

Going the other way was Cairn Energy. Its shares have been under the cosh recently following the flotation of its Indian operations, but today they added 19p to £17.02 on reports it had won, in partnership with India's ONGC, two blocks in an auction of assets in the country's gas-rich offshore exploration areas.

Builders merchant and plumbing group Wolseley recovered some ground after the negative response to yesterday's trading statement. It added 10p to £13.59 as Credit Suisse issued an outperform rating and £15.20 price target.

Meanwhile Smith & Nephew, the maker of hip and knee implants recently tipped as a bid target for the private equity owners of rival Biomet, rose 13.5p to 566.75p. Goldman Sachs raised its 12 month target from 470p to 580p, saying the company was likely to cut costs or return up to $1.2bn (£605m) to shareholders to pre-empt being taken over.

Housebuilder Wilson Bowden added 43p to £23.20 awaiting bid news after the expiry of an initial deadline. Dealers were talking of offers around £25 a share.

The Competition Commission report into supermarkets was widely seen to be benign, and accordingly lifted shares in the sector. Sainsbury's added 3.5p to 438p, while Tesco was 1.5p better at 415.25p.

Struggling record and book retailer HMV was steady at 134p on news that US investor Brandes now holds a 10.15% stake.

Mid-cap insurers were unwanted after Credit Suisse turned negative. Hiscox lost 17.75p to 247.75p as the bank cut its target price from 290p to 205p, while Amlin fell 19.25p to 304p as it downgraded from outperform to neutral.

Another loser was online gaming group PartyGaming, down another 1p to 26.75p on continuing worries about the scope of US investigations into internet gambling. Rival 888 Holdings fell 10.25p to 105.75p.

Lower down the market Beowulf Mining was steady at 3.375p as it confirmed a new licence application in Sweden for a copper, gold and uranium prospect.

Troubled software firm iSoft added 5.5p to 55p on reports that three bidders had reached the final stages of the takeover process. The three were said to be US healthcare firms McKesson and Cerner, and US private equity group General Atlantic. Other sources suggested the three might be partners in any bid, rather than rivals.

Meanwhile ClinPhone, which supplies technology to the clinical trials industry, lost 20p to 177p. In a trading update ahead of an analysts and investors visit to its Nottingham operations, it warned that the weak dollar would hit profitability, as would the fact it is recruiting a large number of new staff, who will need to be fully trained.

2 Way Traffic was 4.5p better at 144.5p. The company recently bought the Who Wants To Be A Millionaire? television format and today it announced licensing deals to produce episodes in China, the US, Slovenia and Slovakia.

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