January 18, 2008

Enterprise Inns among leading fallers

Enterprise Inns was among the leading FTSE 100 fallers on Tuesday as the index suffered its worst session since the height of the credit squeeze in August.

The pub operator is due to issue a trading update on Wednesday and few expect good news. Analysts have expressed concerns over Enterprise's high levels of debt and the effect of the consumer slowdown on its pubs business. Punch Taverns, which holds its annual meeting on Wednesday, also closed sharply lower.

Mark Brumby, an analyst at Blue Oar Securities, said: "Punch and Enterprise have trimmed all the fat, so any shocks that hit their tenant pub businesses will pass through to the companies pretty quickly. Although Enterprise has been around for years, it has not been tested in its current form in a recession."

Enterprise closed down 6 per cent at a two-year low of 392p while Punch lost 6.9 per cent to 618p.

Confidence in the wider market was undermined by fears of a consumer-led recession on both sides of the Atlantic.

The FTSE 100 slumped 190.1 points, or 3.1 per cent, to 6,025.6, its worst day in five months and its lowest level since August. The mid-cap FTSE 250 dropped 265.8 points, or 2.6 per cent, to a 16-month low of 9,765.8.

The extent of the consumer slowdown in the UK was underlined as normally reliable supermarket group Tesco, down 3.1 per cent to 407p, failed to meet analysts' expectations, while Debenhams, off 16.7 per cent to 63¾p, and Burberry, 16.4 per cent lower at 406½p, also disappointed.

Home Retail Group lost 6.8 per cent to 261¾p, Carphone Warehouse slid 6.2 per cent to 293p and Kingfisher lost 6.8 per cent to 122.2p. JPMorgan slashed its stance on Kingfisher from "overweight" to "neutral" and said the B&Q owner faced "major challenges . . . from the impact of the slowing housing market".

J Sainsbury bucked the trend, rising 1.8 per cent to 386p, as Goldman Sachs added the UK's third largest supermarket group to its "conviction buy" list.

"We believe Sainsbury's share price sufficiently captures the recent slowdown in top-line growth," analyst Sreedhar Mahamkali wrote, pointing out that Sainsbury's £8.6bn property portfolio was worth in excess of the group's enterprise value.

Among the handful of gainers, credit checking company Experian Group rallied from Friday's low, up 2.5 per cent to 375p, before a trading update on Wednesday.

Bank stocks were also hit hard as news of a further $18bn of writedowns at Citigroup undermined hopes of a sector recovery. Royal Bank of Scotland dropped 5.9 per cent to 392p, Alliance & Leicester fell 4.8 per cent to 717p and Northern Rock plunged 16.1 per cent to an all-time low of 69¼p following its extraordinary meeting in Newcastle.

HSBC lost 4.8 per cent to 772½p as Goldman Sachs analysts in Hong Kong warned that as much as 70 per cent of the bank's $91bn subprime mortgage loan book could fall into negative equity.

Taylor Wimpey ended the session as the biggest blue-chip faller, off 7.7 per cent at 159.2p, as the housebuilder predicted a tough year for the industry.

GlaxoSmithKline, down 2.4 per cent to £13.22, and AstraZeneca, 3.5 per cent lower at £22.27, gave back some of their recent gains as Morgan Stanley downgraded European large-cap pharmaceuticals from "attractive" to "in line". It said: "We are adopting an increasingly cautionary stance on the sector as we think the market has yet to acknowledge the extent of the structural challenges facing the industry. Large cap pharma will need to make radical changes to their business models if they are to generate positive returns after 2013."

Restaurant Group jumped 10.6 per cent to 136p amid hopes of a takeover.

FirstGroup lost 5.9 per cent to 634½p as Goldman Sachs added the transport group to its "conviction sell" list. "We expect earnings guidance for 2009 to disappoint given the cost of fuel, the economic weakness of the US and the weakening outlook for the UK economy," the bank said.

Imperial Energy lost 9.9 per cent to £16.35 as Peter Levine, chairman, netted £25m from the sale of 3 per cent of the explorationcompany. He retains a 6 per cent holding.

No comments: