Adamant: Hardest metal
Tuesday, February 25, 2003

LONDON MARKETS - WPP, Safeway headline decliners, KKR pulls out of Safeway race

cbs.marketwatch.com By Steve Goldstein, CBS MarketWatch.com Last Update: 12:04 PM ET Feb. 24, 2003

LONDON (CBS.MW) - The U.K. market eased on Monday, as a leading ad agency forecast a difficult 2003 and on-the-block supermarket chain Safeway lost one of its suitors.

The FTSE 100 index (UK:1805550: news, chart, profile) ended down 25.03 points, or 0.7 percent, to 3,701.80, coming off two straight positive sessions. European markets were lower after Royal Ahold reported accounting irregularities and the resignation of top management. See full story on European markets.

The U.S. market was off to a weaker start, as the Dow Jones Industrial Average fell 1.05 percent. See full story on U.S. markets.

U.K. based advertising-marketing group WPP (UK:WPP: news, chart, profile) fell 1.2 percent after initial gains. The ad group on Monday posted a 3 percent decline in 2002 revenue to 3.9 billion pounds. Earnings per share for the year dropped 19 percent at 24.9p, it said. See full story on WPP financials.

Looking ahead, it estimated net new billings of over 2.4 billion pounds ($3.6 billion). It said North America showed revenue growth for the first time for seven quarters of almost 2 percent in the fourth quarter. Yet it cited uncertainty regarding Iraq, and it said it expects "another difficult year" in 2003.

"Overall, we believe that forecasts have now largely caught up with the reality in the case of WPP, leaving the stock more attractive," said Sean Eddie, analyst at Banc of America Securities in London, in a note.

U.K. grocer Safeway (UK:SFW: news, chart, profile) fell 1.3 percent after buyout firm Kohlberg Kravis Roberts & Co withdrew from the bidding for the chain.

"KKR has decided for the time being not to progress its potential offer for Safeway any further, but will continue to monitor the situation and keep its position under review," KKR said in a statement.

Of Safeway's fellow suitors, Wm Morrison (UK:MRW: news, chart, profile) fell 1.5 percent, Tesco (UK:TSCO: news, chart, profile) dropped 1.6 percent and Sainsbury (UK:SBRY: news, chart, profile) improved 0.3 percent.

Wal-Mart Stores (WMT: news, chart, profile), owner of the Asda chain of British supermarkets and also a potential bidder for Safeway, fell 1.6 percent in early trade in the U.S.

Metals-mining group Bhp Billiton (UK:BLT: news, chart, profile) (BHP: news, chart, profile) gained 4.5 percent. The company reported sales in its half year ending Dec. 31 rose 5 percent to $8.048 million but profit attributable to holders dropped 19 percent to $931 million, in part reflecting adverse currency movements. See full story on Bhp financials.

It said that prices continued to show some improvement in the opening weeks of calendar 2003. "Prices for oil have risen as a result of the ongoing uncertainty in the Middle East and Venezuela, while steel making raw materials are well positioned to benefit from strong North East Asian and, in particular, Chinese demand."

Another large gainer was EMI Group (UK:EMI: news, chart, profile), which improved 5 percent after it was said to be in preliminary talks with AOL Time Warner (AOL: news, chart, profile) over buying a majority stake in Warner Music in a deal that could bring in $3-$4 billion to the media and entertainment giant, the Wall Street Journal reported, citing people familiar with the matter

Financials mostly higher

Financials were mixed.

Legal & General (UK:LGEN: news, chart, profile) gained 2.4 percent after Goldman Sachs upgraded its shares to outperform. Goldman said it upgraded the insurer "following the group's 13 percent relative underperformance to the U.K. life insurance sector year to date, and our view that fears over dividend growth have been overly discounted."

Internet online bank Egg (UK:EGG: news, chart, profile) - a subsidiary of Prudential plc - earlier gained 1.5 percent, as it posted a 16.6 million pound loss before tax in 2002, driven by a loss in France, but showed that its U.K. operations swung to profits for the year. It said it added 610,000 net new customers in the year, and that it is eyeing the U.S. for a possible entry.

South African-based insurer Old Mutual (UK:OML: news, chart, profile) improved 0.3 percent. It said its group operating profit for 2002 was up 8 percent in the South African rand, but down 15 percent in sterling to 724 million pounds. Its new business sales were 557 million pounds on an annual premium equivalent basis; the figure is not comparable as F&G Life was purchased in the second half of 2001. Its dividend was unchanged at 4.8p for the year.

Pension injection does not faze BT investors

BT Group (UK:BT.A: news, chart, profile) (BTY: news, chart, profile) improved 0.6 percent. The company may inject 1.5 billion pounds ($2.4 billion) on top of existing commitments to plug a hole in its pension deficit, the Financial Times said on Monday, citing people close to the company. The payments will be announced in May, and more than double the telecommunications group's existing commitments, the report said.

CIC Securities in Paris said the pension deficit should not deflect from BT's other strengths. "Partly because of its weak growth prospects, BT has low multiples compared with its European rivals. However, the operator is paying out more and more dividends and generates strong cash flow," it said.

Packaging and services group Bunzl (UK:BNZL: news, chart, profile) gained 0.6 percent. It said sales from continuing operations rose 5 percent in 2002 to 2.7 billion pounds, and profit before tax rose 4 percent to 196 million pounds.

A bid from entrepreneur Hugh Osmond for Six Continents (UK:SXC: news, chart, profile) will be worth 5.6 billion pounds, the Financial Times said on Monday, and which use combined cash and shares worth 650p per share, versus Friday's closing price of 625p. Six Continents management on Monday assailed Osmond's intentions once again and is expected to reject the bid.

Its shares fell slightly by 0.3 percent. Steve Goldstein is a reporter for CBS MarketWatch.com in London.

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