Fears about a consumer slowdown in discretionary spending on items such as home improvements, pubs and restaurants hit the London market this week.
Warnings from leisure group Whitbread and Kingfisher, owner of the B&Q Do-it-Yourself chain, raised fears that interest rate rises were beginning to bite. Both companies spoke of a less confident UK consumer. Kingfisher, which lost 10.6 per cent over the week, ascribed a 15 per cent fall in first quarter retail profits to fears about higher taxes, debt costs and inflation. Whitbread lost 7.2 per cent to 849½p over the week while home improvement stocks such as Floors2Go, MFI Furniture and Topps Tiles all registered heavy falls.
The FTSE 250 index, which is particularly exposed to UK consumer spending, endured a punishing week, sliding 4 per cent to 6,728.9, a four-month low. By comparison, the benchmark 100 index lost 1 per cent to 4,801.7.
Dutch broker ABN Amro cut its rating on the mid-cap sector to ‘underweight’ from ‘neutral’, arguing that valuations for the mid cap sector were above their long-term average and earnings momentum looked poor.
Graham Secker, UK equity strategist at Morgan Stanley also pointed out that the FTSE 100’s valuation was at a record low against the 250, at 14 times earnings compared to more than 18 times for the mid-tier index.
Stock market historian David Schwartz said there were further warnings of a bear market. “April is generally a good month for UK investors,” he said, pointing out that of the 13 Aprils since 1919 when the market fell at least 1.7 per cent, a bear market ran in 11 of those years. The two exceptions in 1953 and 1960 saw falls of 9 per cent and 13 per cent respectively in the spring/summer period. April this year saw the FTSE drop 1.9 per cent.
Yesterday, the FTSE 100 closed up 0.2 per cent while the 250 index was down 0.2 per cent. Volume was 3.8bn shares.
Tate Lyle, the sweetenings group, rebounded from Thursday’s falls, when the World Trade Organisation made an adverse ruling to an appeal by the European Union on sugar exports. Analysts forecast lower sugar prices, although traders pointed out that sugar refining was a relatively small part of Tate’s business. Tate rose 2.5 per cent at 465p.
Marconi continued to slide as analysts rushed to update their forecasts in the wake of the shock news that it had not been selected as a preferred supplier for BT’s £10bn network contract. UBS slashed its price target to 230p from 726p and cut its rating to ‘reduce’ from ‘buy’. Shares in the telecom equipment group lost another 12.3 per cent to 261½p.
“Even if the management successfully broke up the business, it would be hard to realise greater value than 280p,” said Goldman Sachs analyst Tim Boddy, who felt 200p-250p was a fair trading range.
LogicaCMG added 4.8 per cent to 163¼p as Deutsche Bank upgraded the IT services group to ‘buy’ from ‘hold’, saying the weakness in technology stocks on the back of Marconi’s contract loss had created a rare attractive entry point.
BATM, telecom equipment maker, was down 1.4 per cent at 18p, although traders said that it was a likely beneficiary of the BT deal as it makes the specialised switches for Alcatel, one of BT’s suppliers.
Alizyme added 6.4 per cent at 91½p on speculation that several hedge funds were forced to short-cover their positions after its recent placing and open offer to raise £32m.
Edinburgh Oil Gas added 11.3 per cent to 315½p after it agreed to a £133m takeover from a consortium of Dutch North Sea investors.
Manganese Bronze added 1.4 per cent to 214½p. Toscafield, the investment company, which sold its stake in Biofuels, last week upped its stake in the London taxi group.
However, Biofuels, which is building a biodiesel plant near Middlesborough, slipped 19.9 per cent to 169p after it said the project had hit delays.
Homestyle, the struggling home furnishings group, was down 2.4 per cent at 81½p following rumours there had been little interest in a potential rights issue.
Kleeneze, the home retailer, fell 15 per cent to 125p after a profit warning. Ultimate Leisure lost 13.7 per cent to 243½p after the nightclub owner said it would not meet expectations for the year.
Highbury House Communications slumped 32 per cent to 2.87p after the publisher, which was set to merge with rival Future until the move was blocked by competition authorities, disposed of several titles and said it was looking to raise equity.
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