Ailing Big Food awaits Viking raid

FIFTY-three years to the day after the UK's first supermarket opened its doors in Earl's Court, west London, competition in the sector is as fierce as ever.

Major market players Tesco and Asda continue to crush the opposition by firing out price cuts every week. It's almost impossible for the likes of Big Food Group to make a decent crust.

The Iceland frozen food-to-Booker cash 'n' carry group is having a hard time of it. Doubts about growth strategy increased recently when it pulled out of the bidding for convenience store Londis. Dealers said the move smacked of desperation by management.

Revived industry rumours now suggest that second-quarter trading has been badly hit by the wet summer weather. This month's trading update could contain a profits warning. The stock was sold down to 81p before closing 1 3/4p off at 82 1/4p.

A Numis sell recommendation and a slashed target price of 65p, down from 85p, rubbed salt in. Analyst Iain McDonald sliced his current year pretax profit forecast to a bottom-of-therange £42.4m from £47.7m and next year's to £41.6m from £50.8m.

He believes like-for-like sales at Iceland are likely to have deteriorated from the 1.7% fall reported in Q1. Indeed, the second-quarter drop could be as steep as 5%.

Baugur sits on 22% of the BFG equity and long-suffering shareholders must pray every night that the Icelandic retailer will soon launch a bid. McDonald would be surprised.

With trading under pressure, forecasts falling and the balance sheet weak, no one considering a bid needs to be in any rush. Wait for the next downgrades and an even lower share price and then pounce.

J Sainsbury lost 2 1/4p to 258p after credit rating agency Moodys downgraded its senior unsecured debt to near junk status. It is losing market share and issued its second profits warning in four months in July. Chairman Sir Peter Davis was shown the door.

Analysts were recently flabbergasted by the price - £100m plus - paid by Sainsbury to acquire Jacksons, a Hull family-controlled chain of convenience shops. It again raised doubts about chief executive Justin King's strategy.

The Sainsbury family and trusts still own 35% of the supermarket chain's equity. Dealers believe it will not be long before it sells out to a venture capital group willing to pay about 350p-a-share.

William Morrison, which was forced to issue its first profits warning in 37 years because of the difficulties turning around sales at Safeway - acquired this year for £3bn - improved 1p to 181 1/2p.

Meanwhile, Sir Terry Leahy's Tesco, 2 1/2p off at 263 1/2p, goes from strength to strength. It now has a leading market share of 28.1% and turnover approaching the magic £5bn mark.

The flying Footsie raced 42.7 points ahead to 4502. Red-hot rumours of a 640p-a-share bid for Abbey National (5 1/2p better at 603 1/2p) from HBOS (6p dearer at 685 1/2p) kept everyone on their toes and prompted good gains among financials.

Heavyweight oils were also in the mix following upbeat circulars from Merrill Lynch and HSBC. Merrills raised its 2004 Brent crude forecast to $35 per barrel from $31.8 and raised its target on Shell (4 1/2p up at 410p) to 445p from 435p. HSBC also said it prefers Shell to BP 10 3/4p higher at 503 1/2p.

Tullow Oil gushed 4 1/4p to 132p after Merrills upgraded its target price to 150p. It believes the forthcoming interim results will provide further momentum on the underlying asset base and exploration upside.

A Charles Stanley recommendation helped the UK market leader in the field of in-car audio-visual entertainment, Centurion Electronics, to accelerate 5p to 88 1/2p. The company has signed a new retail supply agreement with Home Entertainment Corporation's retail division for its Plug & Play Blue portable in-car system.

Pursuit Dynamics, which provides marine propulsion systems, firmed 1p to 132 1/2p following the appointment of former Anglo-American manager Kester Scrope as head of new business development. Deals are expected to flow in the coming weeks.

A slower-than-expected recovery in its UK broadcast operations hit profits at Vislink. It incurred a first-half loss of £323,000, against profits of £260,000. A strategic review of the UK business is being carried out and further rationalisation will affect the full-year outcome. Investec cut its full-year forecast to £2.6m from £3.6m, but rates the shares, 4 1/2p down at 18 1/2p, a good recovery play.