Market Report: Price war worries hit supermarkets

WORRIES THAT supermarkets will be forced into a cut-throat price war sent investors scrambling to the checkouts. Shares of the major groups were hit with the food retail sub-index plunging 5.1 per cent.

As the stock market slithered from its July high, supermarkets, along with utilities, were regarded as sound, defensive shares, suitable investments at times of stress and strain. But with the market now looking a little more steady the safe haven prop has been whipped away at a time when it has become apparent food retailers are struggling to hold their margins.

Sales are under pressure and costs are increasing; there is no longer the comfort of inflation profits and it is feared that in a desperate bid to keep up some form of growth momentum a fierce price war, as opposed to the phoney exercises the supermarketeers have conducted recently, will break out.

Profit forecasts have been cut back lately with BT Alex.Brown saying fundamentals are deteriorating and "are as bad as they have been for many years".

An on-going Monopolies and Mergers Commission probe as well as vague indications of an anti-superstore feeling are other influences. September's retail sales figures failed to offer much comfort.

Asda and Tesco were the hardest hit. There was talk of a big seller in the market, prepared to hammer both shares. Asda, with Seaq putting volume at 27.3 million shares, fell 6.25p to 151p - just 1p above its 12 month low. Tesco, 13.5p off at 159p, was 8p above its low. Turnover was 31.4 million.

J Sainsbury, with interim figures next week, was cut 27.5p to 551.5p. Profits should be around pounds 464m, against pounds 411m, but attention will be concentrated on its like-for-like sales and statement about current trading. Safeway lost 10p to 283p and Somerfield 6p to 410.5p. The cut-price supermarket display helped drag Footsie 45.3 points lower at 5,206.6. In early trading it was up 30.5.

Once again it was a busy session with turnover nudging 1.2 billion shares. October is turning out to be the busiest month of the year.

Confusion over interest rates also helped to put the brake on blue chips. Eddie George, Bank of England Governor, seemed to rule out a cut this month and managed to reinforce fears rates will remain unchanged after next month's Monetary Policy Committee. But at this month's MPC meeting, when rates came down 0.25 percentage points, two of the nine members pushed for a 0.5 percentage point reduction. Supporting shares managed modest headway with the mid cap index up 7.3 to 4,638.1 and the small cap 4.6 to 1,940.3.

Banks continued to recover with Barclays at one time up 39p on ABN Amro enthusiasm. The shares ended 11p higher at 1,227p.

Off-tune EMI led the Footsie leader board, up 16p to 359p. Pearson, on expectations its acquisition of Simon & Schuster, the US specialist publisher, will go through rose 28p to 915p. Cable & Wireless Communications responded to Henderson Crosthwaite support with a 37.5p gain to 432p. Analyst Chris Godsmark has cut his profit forecasts but continues to rate the shares. For the current year he expects pounds 148m, down from pounds 207m, and then pounds 201m against pounds 250m.

BT was little changed at 747p with hopes the cash-rich group will sharply increase future dividends helping the shares. Securicor was 5p firmer at 415p as Alex.Brown said the shares should be around 520p.

CSFB put the skids under transport shares. Stagecoach reversed 23.5p to 218p and FirstGroup 35.5p to 388p. The investment house said it was receiving "mixed" signals on passenger growth.

Scottish & Newcastle was flat, off 43p to 781p, on the Panmure Gordon switch into Bass advice. But Bass, down 10.5p at 769p, had to contend with negative comments from HSBC which also said sell Diageo, at one time off 10.5p. The shares ended 1.5p lower at 581.5p. The Cadbury Schweppes investment presentation seemed to have a soft centre with the shares falling 14p to 805p.

Jeweller Signet sparkled 3.5p higher to 30.25p as a large line was cleared. It seems Deutsche Morgan Grenfell picked up the overhang, around 50 million shares, at 26p and sold them on to institutions at 26.5p. The shares have come down from 51p in the summer.

Tullow Oil, down to 41p earlier this month, hardened 1p to 77p. There is talk the haggling over its Bangladesh development should be resolved at a meeting on Monday. Norbain, a closed circuit TV group, rose 4p to 229p, reflecting the agreed bid for Gardiner. Stockbroker Butterfield says the Gardiner terms make Norbain a "strong buy".

Oxford Molecular, the drugs group, fell 6.5p to 61.5p despite director share buying. The two founders of Cambridge Combinatorial, acquired by Oxford, Dr Ryszard Kobylecki and Dr Allan Marchington, picked up around 10 per cent of Oxford's capital.

SEAQ VOLUME: 1.19 billion

SEAQ TRADES: 60.896

GILTS INDEX: 110.2 -0.16