Retail gloom drags FTSE lower

London markets were in an unmistakeably gloomy mood yesterday as home improvement chain Kingfisher added to the mounting pile of anecdotal evidence of slowing domestic consumer spending.

The FTSE 100 fell to its lowest level since January 12 as it dropped 1.2 per cent at 4,789.4 in a broad-based decline. The FTSE 250 index lost 1.8 per cent to 6,828.7, a four-month low. Volume was a firm 3.5bn shares.

Kingfisher dropped 6.5 per cent to 254½p, its lowest level in nearly three years, after it joined leisure group Whitbread in warning of weak UK consumer confidence due to higher taxes, debt costs and inflation. Overall, it cautioned that first-quarter retail profits would slide by around 15 per cent. See Lex live on Kingfisher

“Clearly, the weak consumer markets for the UK and France are a big problem,” said Mark Charnock, an analyst at Investec. “Given Kingfisher’s longer term growth opportunities, it is a fundamentally sound business. In addition, any share price weakness will prompt possible bid interest from Home Depot or Lowes.”

Shares in fellow retailers were hit on the back of the comments, with Dixons down 4.1 per cent to 139p and Marks and Spencer 3.1 per cent weaker at 341¾p. HMV Group shed 4.6 per cent to 230p and Halfords lost 6.1 per cent at 278¼p. On Aim, Floors 2 Go was down 12.5 per cent at 52½p.

Kesa Electricals lost 4.6 per cent to 272½p on fears of a slowdown for French consumer spending and increased competition as Dixons unveiled plans to open 100 PC City stores across the Channel.

“We’ve now had the second blue-chip company warning that the UK consumer is weak, but it’s still too early to tell if this is a major trend that will have an impact on economic growth this year,” said Roger Cursley, a strategist at Investec. “We prefer to avoid cyclical stocks just now and there’s clearly a case for the relative safety of utilities and some of the growth sectors which are less economically sensitive.”

Investors switched into defensive stocks, particularly utility companies. Severn Trent was 1.1 per cent firmer at 951p, Scottish & Southern Energy added 0.4 per cent to 933½p and Scottish Power gained 0.2 per cent to 421p.

Corus, the Anglo-Dutch steelmaker, dropped 7.5 per cent to 43½p on fears of weaker earnings after peer Mittal Steel, the world’s largest group, warned that profits would be hit by lower production volumes and increases in raw materials prices.

The battle for Allied Domecq took another twist after the market closed as the drinks group, subject to an agreed £7.4bn takeover from Pernod Ricard of France, confirmed a preliminary approach from a consortium led by wine maker Constellation Brands and Brown-Forman, maker of Jack Daniel’s. Allied shares rallied in the last half hour of trade, ending 0.3 per cent lower 673p. See Lombard on allied Domecq

At the same time, Diageo moved 0.1 per cent higher to 776p after it announced plans for a $900m global bond to pre-fund some maturing debt and look at potential acquisitions. It said using cash flow, monetisation of General Mills shares and borrowings could fund a deal.

Countrywide, the estate agency, slid 9.9 per cent to 290p after it warned it would make a first quarter loss, blaming the integration of the underperforming business recently acquired from Bradford & Bingley and transaction levels around 25-30 per cent lower than the buoyant first quarter of 2005.

The company was already tipped as “sell” by several analysts but Numis Securities immediately downgraded its rating to “reduce’”and chopped its target price to 260p from 300p. It said there were a range of possible scenarios going forward. “The problem is that there is such poor visibility and it is such a highly operationally geared company,” said Justin Bates of Numis Securities.

Reed Elsevier said the market environment for its four business divisions was generally improving in its AGM statement and reiterated its previous performance targets of underlying revenue growth of over 5 per cent and double-digit earnings growth. The media group shares fell 2.9 per cent to 512½p after moving ex-dividend.

Exel lost 1.2 per cent at 823.5p after it completed the sale of its waste disposal business, Cory Environmental for £205m to Montagu Private Equity

The logistics company also said first quarter trading was in-line with expectations and it brought forward news on its proposed £250m share buyback (around 10 per cent of the outstanding shares).

SVG Capital, the venture capital group, lost 0.5 per cent to 587p after announcing it would have a holding of £36.2m in US electronics components distributor Avnet and receive around £4.7m in cash from the sale of Memec, the specialist semiconductor distributor, to Avnet for around $676m.

Legal & General fell 1.2 per cent to 106p in spite of the life assurance company reporting a good set of new business figures with a 43 per cent increase in worldwide sales to £307m in the first quarter. (on an annualised premiums basis). See more on L&G

Egg rose 3.1 per cent to 99p after it reported a first-quarter core UK business operating profit of £10m and overall group profit of £5m. The online bank said that its results were in line with expectations and it was confident that operating profit would grow strongly over the remainder of the year. See more on Egg

Carphone Warehouse announced a partnership with SpinVox, a mobile phone services company, to provide the world’s first voicemail-to-text service ‘Talk2Text’ which will be launched nationwide from May 2. The mobile phone retailer shares fell 3.9 per cent to 147½p.

Aggreko, the temporary power supplier, dipped 2.3 per cent to 178.75p after its trading update said it expectations for the year were unchanged but it had made an encouraging progress with contacts in six new countries as it expanded its customer base.

The company also announced a $160m three year power supply contract with the Uganda Electricity Transmission Company. However, fuel content which is almost nil-margin represents $120m of the total contract.

Wolverhampton & Dudley dipped 0.7 per cent to £10.33 as the brewer confirmed its offer of 430p per the regional brewer Jennings, up 2.3 per cent at 417p.

The deal is expected to deliver synergies of £2m. Analysts said the price paid (20.7x historic earnings) was full but is expected to enhance earnings by around 2.5 per cent next year. See more on W&D deal

Charter fell 2.6 per cent to 258p as the welding equipment maker announced a placing of 7.5m shares and said trading in the first quarter was ahead of expectations.

Bucking the recent trend for poor sales updates from retailers, Wyevale Garden Centres said like-for-like sales rose 11 per cent in the quarter to April 24. Panmure Gordon increased its 2005 profits forecast by 5.8 per cent but said positive trading news was already reflected in the share price. Bid speculation surrounding the UK’s largest garden centre operator has increased since the arrival of Laxey Partners and Jack Petchey’s investment vehicle Trefick on the share register. Wyevale shares firmed 0.5 per cent at 485p.

Interregnum rose 7 per cent to 7⅝p as the technology merchant bank, announced it had agreed to merge its subsidiary companies, Interregnum Wireless Holdings and Cellular Design Services with Red-M Communications. The combined business will be named Red-M group and will be floated on Aim in the first half of 2005. Red-M’s principal business is the provision of wireless security software products and consultancy services. Interregnum will own around 45 per cent of the enlarged group, before any new money is raised. Seymour Pierce said a successful flotation would lead to earnings upgrades for Interregnum and upgraded its recommendation to “buy”.

A licensing agreement with Roche pushed Osmetech, the medical diagnostics company up 18.1 per cent to 2.8p.

Pearl Street Holdings rose 25 per cent to 2.5p after several contract wins for The Health Group. Pearl invests in undervalued medical and pharmaceutical companies.

Churchill Mining rose 16.7 per cent to 2⅝p after a positive exploration update.

The Niche Group, unchanged at 1⅜p after the appointment of Christopher Stainforth, formerly chairman of Durlacher, as chairman of the investment company.

Ocean Wilsons, the supplier of maritime services in Brazil said strong growth in Brazil’s export markets helped its core businesses to perform well last year. The company announced a marginal improvement in pre-tax profits to $34.6m and the shares fell 3 per cent to 290p

March Networks closed at 542½p after its frst day of trading on Aim yesterday, a 7.6 per cent premium to its offer price of 504p. The provider of internet protocol based digital video surveillance solutions raised £25.2m via a placing of 5m shares. The market value of the company at the close was £83.2m.

Shell-company Coal International will float on Aim today after its shares were priced at 75p, raising £20m. Directors of Coal International include John Byrne, chief executive of Cambrian Mining, a significant shareholder in Asia Energy.

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