Market report: Monday close

By Mickey Clark for MailOnline
Updated: 11:59 EDT, 2 April 2007

The German owner of the Lloyds Pharmacy chain is threatening to spoil the party at Alliance Boots, up 2½p at 1029p, by topping the 1040p-a-share offer on the table from Kohlberg Kravis Roberts and the company's deputy chairman Stefano Pessina.

Celesio, the rival drugs wholesaling and distribution company, is reported to be putting together its own consortium and has appointed NM Rothschild as a financial adviser. KKR last week raised its offer for Alliance Boots and has now been given access to the books.

Celesio tried to block last year's £7bn merger of Boots and Alliance UniChem.

Meanwhile, the rest of the market started the second quarter on a firm note despite a mixed performance by shares in Asian markets this morning. The FTSE 100 index rose 7.5 at 6315.5.

It has taken a long time, but Compass Group, up 8¼p at 348¼p, is showing signs of revival. The shares have performed strongly in the wake of last week's betterthan-expected first-half trading update, which has prompted brokers to begin upgrading their profit numbers.

BT Group rose 6¼p to 310p as fund managers began switching out of Vodafone following last week's warning on margins.

But Vodafone rallied 1.1p to 136.6p after Dresdner Kleinwort repeated its buy rating following a meeting with the company. Only last week, the mobile phone giant's boss Arun Sarin told the City margins in the UK and Germany had come under pressure from increased competition.

BT was also underpinned by the news that Pirelli is in talks to sell two-thirds of its controlling shareholding in Telecom Italia to AT&T in the US and Mexican mobile phone operator America Movil for €2.82 a share. The Pirelli stake is held by its Olimpia unit, which controls Telecom Italia via an 18% holding. Cable & Wireless also rose 4.1p to 170.7p.

Credit Suisse is sticking with its outperform rating on Carphone Warehouse, off 2½p at 274p¾, following the retailer's thinly veiled profits warning. Carphone's unscheduled trading statement said full-year results for the year just ended would be in line with expectations.

But it warned that increasing costs associated with broadband customer service, as well as incremental investment in joint venture start-up costs, will hurt pre-tax profits for the current year to 31 March 2008 by between £20m and £30m.

Credit Suisse said this was likely to drop consensus pre-tax forecasts from £250m to between £220m and £230m with a 4% to 5% impact to medium-term forecasts as it expects some of the costs to reverse.

British Land, up 30p at 1558p, and Land Securities, 34p better at 2174p, have been upgraded by HSBC following a review of the European property sector, but rival Slough Estates, up 4½p at 788½p, has been downgraded. HSBC says British Land has been oversold and is raised from neutral to overweight and its target from 1682p to 1730p.

Land Securities has been upgraded from underweight to neutral with a target price up from 2201p to 2240p, having already fallen 10% this year. Slough Estates was downgraded from overweight to neutral with an unchanged target of 840p having enjoyed strong support since March.

HSBC remains underweight in Liberty International, 13p firmer at 1260p, with an unchanged target price of 1170p, along with Hammerson, where the target is raised from 1383p to 1500p. The property market is suffering from weaker prices.

Enterprise Inns fell 12½p to 656p after Credit Suisse began coverage of the shares with an underperform rating and just 610p. The broker calculates that the shares trade on a current prospective price-earnings multiple of 19.4 times, and yield just 2.2%.

The company's management continues to pursue a highly effective strategy to maximise value. It reckons further re-leveraging of an appreciating asset base should allow it to repurchase some £1.7bn of equity during the next three years.