Buffett rumour ignites interest in Centrica

British Gas owner Centrica climbed 4.5p to 305p yesterday on talk of stakebuilding by billionaire investment guru Warren Buffett. The world's richest man was said by traders to be buying shares through his Berkshire Hathaway conglomerate, and at 21m, the volume of Centrica shares traded was higher than in recent days.

Buffett is known for taking stakes in what he perceives as undervalued and defensive companies, such as Coca-Cola, Kraft Foods and Tesco. Through its MidAmerican Energy subsidiary, Berkshire Hathaway also owns UK utilities Yorkshire Electricity and Northern Electric, which between them serve 3.8m customers.

Neither Centrica nor Berkshire would comment last night.

The British company has been mentioned as prey and predator in recent times. Russia's Gazprom is one mooted buyer, while Centrica was said to be interested in bidding for British Energy.

Overall the market slipped back for the second day running. The FTSE 100 closed down 18.3 points at 6034.7, following a fall of about 100 points on Wall Street. The US market weakened after some disappointing earnings statements, including one from chip maker Texas Instruments.

In Britain, banks and builders were among the leading fallers. Royal Bank of Scotland lost 14.5p to 358p as the company announced its much awaited rights issue. At £12bn it was at the top end of the expected range, helping to unnerve investors. Traders were trying to pinpoint which of the other banks would need to tap shareholders for cash, the favourites being Barclays, down 17.5p at 461p, and HBOS, 20p lower at 520p.

Bradford & Bingley slipped 1.25p to 163.5p after it warned in a trading statement of rising bad debt provisions. Last week the mortgage bank, which specialises in buy-to-let, was rumoured to be contemplating a rights issue but yesterday said it was fully funded into 2009. Even so, analysts at Keefe, Bruyette & Woods cut their price target for Bradford & Bingley from 250p to 215p.

As for the housebuilders, the damage was done yesterday by a negative note from Merrill Lynch, which had been bullish on the sector.

After spending four days visiting 60 new home sites in the south of England, Merrill analyst Mark Hake concluded that the deterioration in the housing market was worse than he had thought.

"Worryingly, it is clear that the UK housebuilders are entering a new and potentially volatile period characterised by significantly constrained mortgage availability; buyers deferring purchases in anticipation of price falls; and, most recently, their growing concerns about employment security," Hake said.

He has reduced his rating on Barratt Developments, Bellway and Redrow from buy to neutral, and cut Bovis Homes and Taylor Wimpey from neutral to sell. He kept Persimmon as a buy, but this did little to support its shares, which fell 37p to 662p.

Barratt lost 18.5p to 346.75p, Bellway 26p to 764p, Redrow 6.5p to 286.25p, Bovis 18.5p to 494p and Taylor 9p to 150.75p.

On the way up were miners and oil companies as commodity prices continued to rise. Oil neared $120 a barrel on concerns about supplies from Nigeria after attacks on Royal Dutch Shell facilities, and ahead of planned strikes at the Grangemouth refinery in Scotland.

The strength in the crude price lifted Tullow Oil 11p to 732p and Cairn Energy 35p to £30.50. BP rose 2.5p to 576p but Shell slipped 16p to £19.21 on concern about the Nigeria situation.

Eurasian Natural Resources led the miners higher, up 105p to £13.11, while Kazakhmys climbed 62p to £16.94.

Among the mid-caps, engineer FKI jumped 6.75p to 84.5p as it accepted a cash and shares offer from industrial investor Melrose. Melrose shares added 14.6p to 162p, valuing the offer at just under 85p an FKI share.

Price comparision website Moneysupermarket.com added 8.25p to 113.5p after it said revenues had grown by 30% in the first quarter of 2008.

Milk and cheese producer Dairy Crest fell 34.25p to 400.5p after Credit Suisse cut its target from 550p to 440p. It said: "[The shares ] might be cheap for a business that exhibits any sort of growth, but for many years now the only increase in Dairy Crest profits has come through acquisition - in underlying terms the profits have fallen on average by 3-4% per annum over the last five years, we estimate."

Fiberweb, which makes wipes and nappies, dropped 17.5p to 37.5p after Israeli group Avgol Industries pulled out of a possible offer for the company owing to problems raising finance in the current credit market conditions.

IT minnow Petards added 35% to 0.38p as it revealed it was in talks with a number of parties about selling the company, or one of its divisions, or a refinancing of the business by a third party.

Finally, electric vehicle specialist Tanfield lost 15.5p to 103p as its £13.7m full-year profit came in below expectations.

Mind the gap

Connaught, a specialist in social-housing maintenance, yesterday reported a 60% jump in half-year profits and a positive outlook for the rest of the year. But its shares, which have had a good run recently, ran into some profit-taking and fell 5.25p to 374p. Analysts reckon the positive news from Connaught bodes well for rivals such as Mears, up 4p to 294p. ABN Amro pointed out that Mears trades at a discount to Connaught. "Although we view Connaught as worthy of a premium, the valuation gap of 30% seems excessive," it said. "Mears offers a cheaper alternative for exposure to what is a market with both defensive qualities and good growth prospects."

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