Signalled weakness hits SMG

SMG, the Scottish radio and television group, resumed its downward trend yesterday as a leading broker slapped a sell rating on the stock on the grounds that a bid from ITV is unlikely in the near term.

SMG, which owns Virgin Radio and the Pearl & Dean cinema advertising business, has been a poor performer in recent weeks. Since hitting 118p on November 17, its share have fallen by 13%, unsettled by rivals talking of a slowdown in the radio advertising market.

They fell a further 3.5p to 102.25p yesterday - their lowest level since mid-September - as Merrill Lynch gave investors a couple more reasons to avoid the stock.

Downgrading its rating to sell from neutral, the American broker said the long-rumoured bid from 17% shareholder ITV, off 1.5p at 108p, was unlikely to happen in the near future because of the limited potential for "synergy extraction". Indeed, ITV already handles SMG's TV advertising sales.

If that were not enough to put off ITV, Merrill thinks SMG's pension fund deficit will, given it will rise from £25m to £63m under new accountancy rules.

As for the trading outlook, Merrill has knocked 14.5% and 7.3% respectively off its earnings forecasts for the next two years because of the impact of the new TV airtime trading rules and the slowdown in radio advertising.

In the wider market, leading shares closed higher and would have closed higher still, had it not been for weakness in oil stocks as the crude price sank to a 12-week low. Nonetheless, the FTSE 100 closed 15.2 points higher at 4,517.2 with United Utilities , 29.5p better at 601p, and Severn Trent - 38.5p stronger at 943p - being the biggest gainers after industry regulator Ofwat said average household water bills could rise 18% over the next five years.

The FTSE 250 gained 26.3 points to 6,620.4, while the FTSE 250 index rose 4.3 points to 2,688.7. The chancellor's pre-budget report had little or no impact on the market. The benchmark 10-year gilt closed at 102.460, yielding 4.682%.

Matalan, the discount retailer, moved up 7.25p to 225p after Deutsche Bank moved from hold to buy and set a 250p target price.

According to analyst Rod Whitehead, November is Matalan's most important month, and last year was a disaster due to stock shortages, warm weather and an inadequate response to discounting by rivals. This year Mr Whitehead believes the situation is much better. As such, he thinks the healthy trading trends reported by Matalan in September and October have continued and he has upgraded his pre-tax profit forecast to a top of the range £90m as result.

Overall, Deutsche believes this Christmas will be one of the toughest in years - with Boots , up 8p to 639p, WH Smith, down 1p to 296p, and Marks & Spencer, 2.5p stronger at 335p, the most likely to prove disappointing.

On the subject of M&S, Richard Ratner of Seymour Pierce formally stated yesterday that Philip Green had said nothing about his intentions for the firm or any other retailer at his meeting with the billionaire retailer on Wednesday.

Halford Group firmed 2.5p to 304p. After the close, the market was awash with speculation that CVC Capital Partners, one of the company's early stage backers, had appointed Merrill Lynch to sell just under a half of its 46% holding.

Planestation, which owns Manston airport in Kent, was dog of the day. Its shares plunged 20.5p to 41p after the company revealed it needed a working capital injection of not less than £22m. It said talks with institutional investors over another equity issue - Planestation raised £5.2m from shareholders in September - had been positive, with some actually saying they would support the issue.

Aberdeen Asset Management improved 2.5p to 106.5p as investors drew comfort from Wednesday's comments from stockbroker Brewin Dolphin, unchanged at 98p, on the spilt-capital trust fiasco.

In its full-year results state ment, Brewin revealed it might have to make a payment to a compensation fund set by the Financial Services Authority. However, it said the amount would not be material in relation to its assets, and after paying its capital adequacy margin would still be well above the required limit.

From that, market professionals deduced that Brewin might have to pay around £10m, much less than the City had feared. All of which would be good news for Aberdeen, as it will also have to make a payment into the fund. An announcement is expected before Christmas.

Profit-taking saw Freeport, the out-of-town shopping malls group, fall 14p to 394p. However, the shares are still 25% higher since the company posted full-year results at the end of October. One explanation for that strong performance is that the company has received a bid from a European property group.

Freeport decided to exit from the UK market earlier this year and focus on Europe. In June, it opened mainland Europe's largest outlet centre in Alcochete, Portugal.

On Aim, Kryso Resources, the mineral exploration group that boasts bear raider Simon Cawkwell as a non-executive deputy chairman, made a strong debut. Placed at 10p, the shares finished the day at 14.5p.

Andor in the picture
Keep an eye on Andor Technology this morning. Following a £9m placing by Bridgewell Securities, shares in the Belfast-based company, which makes high-end digital cameras, will start trading on Aim at 90p and dealers expect them to achieve a decent premium. The word in the market yesterday was that the first price could be 100p-105p.

The placing was more than four times oversubscribed and retail investors have been knocking on Andor's door. Its cameras are used in drug discovery and toxicology analysis and the company boasts some of the world's leading universities as clients.

Unusually for an Aim newcomer, it has made a profit for the past five years and no directors are selling stock in the placing, which raised about £4m. It will be only the second Northern Irish group to list on Aim in the past three years.

At the 90p placing price, Andor, which generated sales in excess of £11.5m this year, will be valued at £23m.