MARKET REPORT: Financials continue the charge on takeover hopes

A dull stock market was, not for the first time, enlivened by a heady round of takeover speculation. As the train strike kept many market participants on the sidelines and New York slithered from its latest peak, the FT-SE 100 index retreated 18 points to 3,429.2.

On both sides of the Atlantic retail experiences helped restrict enthusiasm. A Confederation of British Industry survey, showing sluggish shop sales in June, had already cast a shadow over the proceedings when stronger- than-expected US retail sales dashed hopes of another interest rate cut, pushing the Dow Jones Average down nearly 40 points at one time.

So the increasing array of "bid specs" was allowed to take up the running. And at the end of a week when Smith New Court admitted it was in bid talks it was fitting that financials should lead the charge.

Hambros and Schroders, London's remaining top-flight merchant banks still cherishing their independence, romped ahead.

Schroders put on 43p to 1,323p, a year's high. The non-voting shares gained 35p to 1,023p.

The group has ruled out a bid for Smith and many wonder whether it will entice Cazenove into a merger. In the meantime the possibility of Schroders, still family-controlled, falling to one of the marauding overseas invaders is fascinating the market. ABN Amro, the Dutch group which expressed interest in Barings and owns Hoare Govett, is named as a possible suitor.

Hambros rose 8p to 202p. The shares slumped to 182p after the bank was forced into its first dividend cut, leaving it looking vulnerable to a strike.

The euphoria that has characterised the financial sector has quickly replaced the depression created by Hambros' poor trading performance. And the market feels any bid will have to be near the 315p level the shares touched last year.

SG Warburg lit the financial fuse. It has gone to the Swiss Bank Corporation.

Others to surrender their independence are fund manager Jupiter Tyndall and merchant Kleinwort Benson, both accepting German bids.

Smith has signalled its intention of surrendering to a foreign strike and First National Finance Corporation has said yes to Abbey National although there is persistent talk of another offer.

Zeneca, the drugs group, had another excited session climbing 27p to 1,157p. The shares have advanced more than 300p this year. Roche, the Swiss group, was again the name in the frame with a 1,450p bid on Monday the hot tip. Some, however, detected a possible Japanese interest.

In the current heady atmosphere even PowerGen, the generating giant, was caught up in the speculation with Hanson, which did attempt to buy the company before it was privatised, the name in the frame.

The market expects a big Hanson assault; but then it has been awaiting such a development since the bid for the Imperial Group in 1986. Since then there have been a few deals overseas and relatively mundane strikes at home. The regional electricity companies were on tenterhooks with Hanson (of course) and Trafalgar House the favourites to strike.

South Western, resisting a bid from Southern Co, a US group, shaded to 935p. There was talk of US arbitrageurs paying 937p.

Wm Morrison put on another 6p to 170p on the story Asda is looking to strike. Asda fell 2.75p to 94.25p.

Vaux, the brewer and hotelier, jumped 10p to 267p on stories it planned a significant hotel deal. There were even suggestions it could be forging a link with Jarvis Hotels, which is on its way to market.

Lucas Industries fell 9p to 191p as a number of analysts made cautious noises. House of Fraser lost 6p to 139p with one investment house, thought to be Morgan Stanley, trimming its profit estimates.

The rail strike produced a little demand for bus companies and even Eurotunnel, with EuroStar still running, added 1p to 196p. But worries of lost revenue lowered Photo-Me, running station photo booths, 11p to 194p.

Meggitt, the aerospace group was little changed at 77p. The shares could fall on Monday. After the market closed TT, the acquisitive electronic and packaging group, said it had sold its 4.3 per cent. There had been hopes of a TT bid.

The TransTec engineering group firmed to 94p as Greig Middleton, the stockbroker, forecast a swing back to profits this year. It expects pounds 6.5m with pounds 9.5m next year. Richard Carr, ex-Warburg, ex-Tomkins, moved in last year to restore the troubled group.

HP Bulmer, the cider maker, held at 454p. Stockbroker James Capel has sold its 5.4 per cent which it is thought to have acquired from Whitbread. Capel probably dribbled the shares onto the market, making a modest turn in the process.

TAKING STOCK

rGreat Universal Stores' cash pile has intrigued the market for years and this week's results, illustrating reserves of more than pounds 1bn, have increased the speculation. Signet, the jewellery chain that used to be called Ratners, has now emerged as the market's favourite target. It has fixed up a new deal with its bankers and is back in profit Another long-rumoured possibility is Next, the retail group.GUS fell 5p to 608p; Signet rose 1p to 14.5p and Next was unchanged at 374.5p.

rWelpac, the troubled hardware products group, has duly collected a bid, sending its shares crashing 4.5p to 1.5p. RAP, off 2p at 148p, is offering pounds 460,000 for the company in a share exchange. The deal values Welpac at 1.15p a share. In its last year it lost pounds 7.3m.