Whitbread proves insufficiently liquid

In a weak London market yesterday the share price of leisure conglomerate
Whitbread drifted on concerns that this month's asset review will not prove sufficiently radical to attract new buyers.

Alan Parker, the new chief executive of the Travel Inn and Beefeater pubs group, is due to announce the findings of the review on October 28.

With the Whitbread share price close to a five-year high, analysts believe substantial asset sales and return of capital to shareholders are required in order to push the stock further.

In a note titled Evolution or Revolution, Swiss investment bank UBS warned yesterday that if Mr Parker fails to reduce the number of businesses in the group the shares could fall back to 750p-800p.

"We believe a minor disposal programme would leave the share price vulnerable, especially in an environment of slowing UK consumer demand," said analyst Julian Easthope in the note.

However, if the result of the asset review includes a disposal of Britvic, the sale of Marriott hotel business and Whitbread's restaurant division, coupled with a significant return of cash to shareholders, Mr Easthope reckons the share price could move above £10. Yesterday Whitbread's share price ended 5.5p weaker at 827.5p.

In the wider market, leading shares closed in negative territory. The FTSE 100 finished 13.1 points lower at 4,634.8, with the mining sector doing most of the damage.

Antofagasta fell 74p to £10.66, while Xstrata shed 41.5p to 858p, BHP Billiton lost 26.5p to 573p and Rio Tinto fell back 51p to £14.52 as metal prices were hit by a wave of selling. Copper fell $278 to $2,815 a tonne, while nickel tumbled to $13,3000 from $15,9000 and zinc ended at $1,075, having started at $1,157. Dealers blamed the selloff on profit-taking and rumours that China is considering revaluing its currency.

Traders noted that this rumour has been around several times before and if it proved false, then investors will quickly be back into the market buying copper, zinc and mining stocks.

The FTSE 250 fell 41.6 points to 6,271.3, while the FTSE Small Cap index eased 0.9 points to 2,592.6. In the bond market, gilts closed lower. The benchmark 10-year gilt settled at 102.00, yielding 4.7744 - unsettled by comments from Mervyn King, the governor of the Bank of England, who reminded the City that he had to weigh signs of a slowing economy against significantly weaker sterling when setting interest rates.

Gallaher, the Benson & Hedges cigarette-maker, was in demand again as rumours of a bid approach proved difficult to ignore. Its shares, which were at 647p at the start of the month, rose a further 9.5p to 673p, with market professionals absolutely convinced the company has been in talks with Japan Tobacco.

All told, it was a good day for defensive stocks, as investors banked profits in the mining sector and looked for safe places to park their cash.

Brewer Scottish & Newcastle was one of the biggest beneficiaries of that trend, rising 8.75p to 399.75p, as was Diageo - up 18p to 738p - and
Allied Domecq, 9.5p stronger at 492p.

However, British Airways, up 9.5p to 209p, was the day's top-performing blue chip stock as oil prices eased.

In the FTSE 250 Countrywide, Europe's biggest estate agent, fell 10.5p to 283p, unsettled by rumours that it may require a £50m fundraising to finance the acquisition of Bradford & Bingley's property chain and surveying business.

Speaking at a housebuilding conference organised by Bridgewell Securities at the London Stock Exchange yesterday, Harry Hill, the chief executive of Countrywide, said he was hopeful of sealing a deal with Bradford & Bingley.

On a different tack, stockbroker Evolution Group rose 1.25p to 150p after Altium Securities upgraded to buy in the wake of news that Aim-listed rival Numis Securities - 55p higher at 610p - had received and rejected a takeover approach from Iceland bank Landsbanki.

"We think the prospects for Evolution's revenue growth and strategic positioning may make a takeout price of 200p achievable," Altium analyst Jeremy Grime said.

Among the small caps, the building materials group Cape continued its recent good run. However, yesterday's rise had little to do with bid speculation. Traders attributed the rise to the realisation that Cape is one of the few companies capable of providing industrial scaffolding for large liquefied natural gas projects. The shares rose 3.5p to 130.5p, a six-year high.

Elsewhere, online travel group Ebookers fell 31.5p 179p as jitters set in ahead of today's analyst briefing. Traders expect the company to provide an update on takeover talks. Last week American travel group Expedia announced it was not interested in bidding for the company.

On Aim, Bits Corp - the tiny computer games developer - shot up 1.25p, or 44%, to 4.12p on talk that it has struck a major American distribution deal for a game based on Constantine, the new film staring Keanu Reeves. All of which should provide a fillip for the share price of SCi Entertainments, which has agreed to publish the game for Bits. SCi shares rose 4p to 137p.

Still in the gaming world, Warthog gained 80% to 0.95p on rumours that Gizmondo Europe, which declared an 8% holding on Tuesday, is keen to buy more stock.

· There were a number of errors in the share prices cited in Market Forces yesterday. This was due to technical problems at our information supplier. Apologies for any confusion.