Tobacco sell-off stubs out early gains for FTSE

Tobacco shares were under pressure yesterday in another jittery trading day.

British American Tobacco fell 33p to £19.02 on fears that a large chunk of shares may soon come onto the market. This follows news that the Swiss group Richemont is considering splitting into two companies, a luxury goods business and a company to hold the 30% stake in BAT it holds in partnership with investment group Remgro.

Citigroup said in a note: "Of the 30% stake, about 6% is owned (indirectly) by the Rupert family, 11% through South African-listed paper, and 13% directly via Richemont. Our concern is that BAT shares would be given directly to Richemont shareholders, many of whom may then sell them."

Meanwhile, Imperial Tobacco, which announced a long-awaited £4.9bn rights issue this week, lost 92p to £20.95 after UBS issued a sell note. "We believe that Imperial's lower exposure to the emerging markets and international brands means it will see lower organic growth than its peers," said the bank.

Despite an early rally on Wall Street, the FTSE 100 slipped 16.5 points to 6181.6. Dealers cited weaker UK retail sales and manufacturing figures for the decline, along with inflation worries after the oil price hit $135 a barrel. A $15bn (£7.5bn) rights issue from the Swiss bank UBS did not help sentiment.

Shares in the London Stock Exchange lost 50p to £10.38 after poorly received results, while the sugar group Tate & Lyle fell 11p to 474p for similar reasons.

A surprising gainer yesterday was British Airways, whose shares have been hit recently by the higher oil price. News that a proposed pilots' strike may be averted cheered investors, and BA shares added 9.5p to 212.25p. Its low-cost rival easyJet added 17p to 279.5p as the company sought a judicial review of prices charges by BAA's Gatwick airport.

Telecoms companies were wanted after Cable & Wireless reported a forecast-beating 23% rise in annual underlying profits, and said it may consider a demerger later this year. C&W ended 4.1p higher at 156.6p, while Vodafone climbed 4.9p to 163.5p ahead of its results next week. The move in the mobile phone company's shares added nearly 11 points to the FTSE 100.

The day's main bid speculation surrounded Cadbury, which recently spun off its American drinks operations into a separate, US-listed company. Cadbury shares closed up 16.5p at 698p on revived talk that the investment guru Warren Buffett, Kraft or Hershey might be interested in the company.

Miners had a mixed performance. Analysts at Bernstein Research raised their price target for Rio Tinto from £68 to £80, helping push its shares up 28p to £66.69. They also like Rio's predator, BHP Billiton, and have lifted their target here from £20 to £25. BHP ended up 44p at £21.10.

Xstrata added 87p to £42.24 as Mick Davis, chief executive, splashed out £6.95m for 167,480 shares and, separately, Goldman Sachs raised its price target from £39.05 to £48.80. But Vedanta Resources fell 64p to £26.48 as Goldman cut its recommendation on the business from buy to neutral.

Power companies were lit up by news of a hostile bid in the US. The Texas group NRG Energy has made an unsolicited $11bn all-share offer for US rival Calpine, which turned the spotlight on International Power as a potential takeover target. The UK company's shares surged 11.25p to 449.25p, while Scottish & Southern Energy also benefited, adding 42p to £14.69.

Elsewhere, housebuilders' slide continued. Taylor Wimpey lost another 3.75p to 101p, as the ratings agency Fitch put some of the its debt on a negative rating due to the continuing weakness in the UK and US housing markets.

Royal Bank of Scotland finally ended the decline that followed the announcement of its £12bn rights issue, recovering 3.25p to 244.75p. But most of the other banks continued to slide, with HBOS down 4p at 441.5p, Barclays 6p lower at 392p and Bradford & Bingley falling 2.75p to 101.5p.

The banknote maker De La Rue rose 3.5p to 895p as it announced a 21% rise in annual profits, a plan to return £160m to shareholders via a special dividend, and also confirmed it was in talks to sell its cash-systems business. Analysts believe this division could fetch about £400m if a sale went ahead.

The Scottish cashmere firm Dawson International climbed 38% to 2.25p as fabrics group Leeds International, up 0.5p to 18.5p, declared a 28.76% stake. Leeds said the stake was an investment and it planned to work with Dawson's management "to increase shareholder value". It has no plans to take the shareholding above 30%.

Finally, Freeplay Energy added 1p to 7p on news of a contract to incorporate its rechargeable technology in Roberts radios, but a profit warning from the recycling specialist Straight saw its shares drop 25p to 82.5p.

Long wait on the cards

There was good news for the leisure group Rank yesterday. A tribunal has ruled that Revenue & Customs should repay £36.3m in VAT which was applied to interval bingo, where customers play the game between the main sessions. Rank shares added 1.5p to 89.75p, but investors should not get too excited. Revenue & Customs has until July 10 to appeal, and if it does the case could drag on for years. Landsbanki analyst Mark Reed said: "Given the government's need for tax revenue at the moment we would expect an appeal. There is [also] a risk that this legal victory may negate government enthusiasm for any further help [for the bingo industry]."

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