FTSE retailers slip on ‘Super Thursday’

By Rachel Cooper, City Reporter


Published: 9:01PM GMT 14 Jan 2010








FTSE 100



FTSE 250

Despite reporting robust sales and seeing gains in early trading, a raft of
retailers sank throughout the day as investors remained cautious in the face
of growing concerns about the outlook for the coming year.

Home Retail, the company behind Argos and Homebase, was the biggest
faller in the FTSE 100, ending the day down 17.7 at 265.8p. The fall came as
the group announced that like-for-like sales at its Argos chain rose just
0.1pc in the 18 weeks to the beginning of January. Like-for-like sales at
its Homebase chain rose 4pc, but the company warned trading would “remain
challenging” in 2010.

Seymour Pierce retained their “sell” recommendation on the group,
warning: “Argos does not travel well outside of the UK and is coming
under increasing pressure from the food retailers ramping up their non-food
efforts.”

HMV Group, down 7.35 at 84.4p, DSG, down 2.34 at 35.19p, and Mothercare,
down 29½ at 626p, were among the largest fallers in the FTSE 250.

As a group HMV sales were hindered by what the company called an “unsatisfactory”
performance at its book-selling business, Waterstone’s, although sales rose
at its eponymous music and video game chain.

Credit Suisse was muted about HMV’s update, saying it was “mixed”
and with a “significantly weaker performance from Waterstone’s relative
to our expectations”. The broker retained their rating of “underperform”.

Philip Dorgan of Ambrian Partners said while consumers had shown a willingness
to spend over the Christmas period, there were concerns over the future.

“The sector has doubled over the past year and people are concerned that
the economy is going to take a turn for the worse and this is as good as it
gets,” he said. “Companies are being cautious because they don’t
know what is going to happen any more than we do.”

But it was Premier Foods that took the mid-cap wooden spoon, falling
3.88 to 33½p following an announcement that its full-year pre-tax
profit would be at the lower end of market expectations after its margins
were hit by price-cutting.

Despite the sluggish performance from retailers, the FTSE 100 rallied
for the first time in two days, finishing up 24.72 at 5498.2. The FTSE 250
dropped slightly to finish down 1.49 at 9568.03.

Leading the charge were mining companies after Rio Tinto lifted
sentiment by beating its own forecast for iron ore output in the fourth
quarter.

Evolution maintained its “add” recommendation, upping the target
price from £29.60 to £35.25. “Iron ore remains the key for
this company and record production provides a solid backdrop for the group –
especially given scope for significantly higher prices in the 2010 benchmark
contract,” said Charles Kernot. The miner ended the day up 79p at
£36.17½.

Xstrata, however, took the top spot on the leaderboard, rising 47p to
£12.20 after Investec initiated its coverage of the company, which is the fourth-largest
miner on the LSE, with a “buy” recommendation and a target price
of £15.50.

Antofagasta rose 31p to £10.31 after metal prices bounced back
following recent fears over Chinese tightening. Copper gained for a second
day, boosting the London-listed Chilean copper miner, which also announced
that it is to acquire a 40pc stake in a mine project in Minnesota.

Also spending much of the day near the head of the table was building supplies
firm, Wolseley, which rose 42p to £14.93, helped by a recommendation
upgrade to “overweight” from “equal-weight” by Morgan
Stanley, which upped the target price for the firm to £16.50 from £16.10.

After a bumpy few days following the profit warning from Société Générale and
the announcement that China was to restrict lending, banks edged up the
table, buoyed by the prospect of fourth-quarter figures from JP Morgan due
on Friday.

Lloyds leapt up the leaderboard during the day after Ian Gordon at
Exane BNP Paribas raised his target price from 65p to 67p, but he was quick
to temper his optimism, saying: “We remain positive – but not delusional”,
adding that the broker is disassociating itself from talk of “any rapid
return to a share price above 100p”.

The banking group was also spurred by rumours that it was to sell £400m of
stakes in various companies. But at the bell it had slipped to fifth place,
rising 1½ to 57½p.

A number of life insurers gained ground after Morgan Stanley raised its target
prices on Old Mutual, up 2½ at 112½p, and Standard Life,
up 1 at 213p, but Prudential closed down 3½ at 620½p.

Among the losers on Thursday were the real estate investment trusts (REITs)
which took a battering from Mike Prew, an analyst at Nomura. He pulled no
punches in his assessment of the REITs, downgrading his sector view from “neutral”
to “bearish” over fears of a “credit cold turkey”.

Quantitative easing was only a temporary stimulus, he warned, adding that
returns were at risk from capital rationing, rising bond yields and fragile
rents.

He went on to give this damning indictment of the REITs’ strategy: “Most
REIT boards are in strategic cul-de-sacs with re-heated business models
having lost any ability to read the cycle. Many sold assets at 8pc and are
now buying at 6pc when bond rental streams are, we think, beginning to
appear expensive with a risk of a ‘double dip’. We think UK REIT dividends
offer inadequate support, and boards buying earnings accretion are running
the risk of asset dilution and shortening CEO tenure.”

Following this tongue-lashing, British Land fell the most, down 10.2 to
455.8p. Land Securities, also slipped, closing down 10 at 684p, as
did Segro, down 6.7 at 333.3p, and Hammerson, down 4.6 at
395.3p.

Topping the FTSE 250 leaderboard was conveyor belt maker Fenner, up 12
at 200p, which rose after analysts at RBS raised its target price. Hays
also rose after analysts at Morgan Stanley upped their target, closing up
4.7 at 110.7p.

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