Broker names sickest pensions

BEWARE of PFDs. Investors are already suffering from the summertime blues and will not want to be reminded that the City's 'pension fund deficit' situation remains a major concern.

Actuary Lane Clark & Peacock's recent survey showed that although the total deficit among 89 of the top 100 companies covered fell last year to £41bn from £55bn, many companies may just have £84 of assets in their pension schemes for every £100 of liabilities under the FRS17 accounting standard. The Footsie would need to rise 35% to 5,900 to wipe out the deficits.

Jeremy Batstone and his research team at quoted stockbroker Charles Stanley (unchanged at 187 1/2p) has sent a useful note to its army of private clients advising them of the main companies to steer clear of because of the size of their PFDs relative to their current market capitalisations.

The 'sickly seven' are GKN (3 1/4p down at 212 1/2p), BAE Systems (7 3/4p lower at 203 1/4p), Rolls-Royce (6p off at 230 1/4p), British Telecom (1 1/2p easier at 177 1/2p), Royal & SunAlliance (1p cheaper at 71 1/2p), ICI (1 3/4p lower at 222 1/2p) and Unilever (1p dearer at 469 1/2p).

GKN's estimated pension deficit is 56% of its market cap (£1.6bn) and Stanley estimates that the equity assets in its pension fund would need to rise by 90% to extinguish its PFD. It would only take a 30% increase in BT's (£15.3bn) equity assets to do the same.

News that prices of goods leaving UK factories rose at their fastest rate for eight years fuelled inflationary worries and talk that UK loan rates will have to be a lot higher. The Footsie lost an initial 11-point gain to trade 44.4 lower before closing 23.5 points off at 4,314.4.

Down 147 points on Friday after the shock of weak non-farm payroll figures, Wall Street rallied 43 points in early dealings ahead of today's expected 0.25% rise in the federal funds rate to 1.5%.

But the weakest monthly employment numbers since December 2003 have taken the 0.25% increased price off the agenda at the September Federal Open Market Committee meeting.

Shares of Wm Morrison have been off the menu for months. The acquisition of rival Safeway has left the City underwhelmed and last month's profit warning gave investors a big kick in the bread basket. Down from 240p, it dropped a further 6 1/2p to a year's low of 171 1/4p following yet another large placing of stock.

Broker ABN Amro placed about 24m shares at 174p with institutional investors. Dealers speculated that a big parcel of shares could have landed in Brandes' lap. The US fund manager, which specialises in acquiring stakes in underperforming companies, recently bought 89m shares, or 3.3%.

An Arbuthnot buy recommendation and earnings upgrade following better than expected interim results helped building and infrastructure group Morgan Sindall erect a 5p gain at 447 1/2p. A boom in low-cost housing provision helped first-half profits soar 31% to a record £5.7m.

Global fund manager Franklin Resources took advantage of the carnage at BSkyB last week following disappointing subscriber numbers. It bought a 3.6% stake, or 69.6m shares. The pay-TV giant plummeted 114p in one session on the figures and was 8 1/2p lower at 484p yesterday. Director Lord St John of Fawsley bought 2,000 shares at 491p.

Software provider AIT crashed 20 1/4p to 33 1/4p after warning that full-year sales and profits will be below market expectations. Analysts forecast pre-tax profits of £1.5m, down from £3.1m.

European Diamonds lost some sparkle at 49 1/2p, down 5p, following a placing by Numis of 16.4m shares at 40p. The £6.55m raised will help fund the construction and operation of the mine at its diamond satellite pipe project in Lesotho, southern Africa.

The bullish tenor of chairman Shane Smith's agm address lifted Independent International Investment Research 11 1/2p to 26 1/2p. He said the company expects to announce significant business wins next week.

WITH wealthy private investor Sebastian Taylor long gone after selling his stake, Aim-quoted Caledon Resources looks cheap at 4 5/8p, up 1/4p. The gold miner has formed a joint venture agreement with China's largest industrial player, Chenghua Industrial Corporation Ltd. Based in Beijing, Chenghua has access to more than 20 advanced exploration and mining projects throughout China.