Property groups flounder in wake of surge

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Property stocks lagged behind as the FTSE 100 edged into positive territory for the year.

British Land fell 9.4 per cent to 437½p, while Liberty International fell 8.1 per cent to 404p, Land Securities shed 5.9 per cent to 557p, and Hammerson dipped 5.4 per cent to 323¾p, hit by profit taking – the FTSE All-Share Real Estate index has risen 64 per cent from its March lows, outpacing the wider market by 28 per cent in that period – and negative broker comment.

Goldman Sachs said leading indicators were all pointing toward further declines in rents in the second half of the year. “As a result, we do not believe that capital values will rise in the near future – historically a key driver of share price outperformance in the real estate sector,” it said.

Morgan Stanley further unnerved investors by saying there was a likelihood that some of the property companies that have already tapped shareholders for cash could come back for more. Analyst Bart Gysens argued this would ease the pressure to make disposals.

“Placing, say, an additional 10 per cent of new shares could remove the pressure to sell and give management teams more bargaining power,” he said.

The FTSE 100 advanced a further 63.4 points, or 1.4 per cent, to 4,462.1, up 28 points overall on the year. The blue-chip index was lifted by a better-than-expected US jobs report and relief that the US bank stress test results has passed without any shocks.

Over, the week FTSE 100 gained 220 points, or 5.1 per cent, and has now rallied 27 per cent per cent from its March lows.

Royal Bank of Scotland spearheaded Friday’s advance, rising 13.9 per cent to 47.4p even though the bank reported £2.9bn of impairment charges for the first quarter of 2009.

However, traders pointed out that RBS shares had fallen 9 per cent on Thursday after the dismal trading update from Lloyds Banking Group, up 3.8 per cent to 100.7p, and Friday’s first quarter results were in line with expectations. In fact, group revenues at RBS were actually ahead of forecasts thanks to a strong performance by its global banking and markets division.

Mining stocks were also in demand, as economic recovery hopes continued to support metals prices. Vedanta Resources added 8.4 per cent to £13.01, while Kazakhmys gained 7.1 per cent to 767½p and Fresnillo rose 7.1 per cent to 570p.

Intercontinental Hotels Group slipped 3.7 per cent to 664p after Deutsche Bank downgraded to “sell” and investors reflected on weak first-quarter numbers from one of its US franchises overnight. Liberum Securities noted that FelCor had reported a 21 per cent decline in revenue per available room in its Holiday Inn division

Among mid-caps, Travis Perkins dipped 3.8 per cent to 753½p on talk the builders’ merchant is poised to launch a £300m-£400m equity fund raising.

Sector watchers said the company would have little problem securing the backing for a cash call.

Rights issue rumours also unsettled Debenhams, down 3.4 per cent to 93p. Further pressure came from Credit Suisse’s retail analyst Tony Shiret who said the company was acting as though it were under severe financial pressure but was being valued as if it were set for a sustained profit recovery.

Northern Foods, which makes Fox’s biscuits and ready meals for supermarket own-label ranges, lost 4.6 per cent to 62¾p on profit taking and a warning from Numis Securities that its dividend could be at risk.

Heritage Oil, up 4.8 per cent to 536½p, was in focus after the Kurdistan regional government said it would commence oil exports later this month. On Wednesday, Heritage said it had discovered an oil field in Iraq that could yield more than 4bn barrels of oil.

However, the Iraqi Oil Ministry said the central government had not granted permission to the Kurds to start exporting oil.

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