Market report: Wednesday close

By Mickey Clark for MailOnline
Updated: 04:09 EDT, 27 September 2007

Shares in Debenhams hit another new low today as whispers in the Square Mile claimed the troubled department stores group was on the verge of breaking its banking covenants.

They retreated ½p to 89½p in heavy turnover of more than 45 million shares. That compares with the 195p at which they were refloated in May last year. Credit Suisse, a big seller of Debenhams, today said its holding had dropped below the disclosable 3% level.

A clutch of large parcels of shares went through on the ticker, including 5.47 million at 84.82p, four million at 84.83p and two million at 86.1p.

The group last week reported a slump in like-for-like sales of 5% in the year to 1 September, and warned that trading conditions were likely to get worse. It is expected to report pre-tax profits of about £130 million next month following several profit warnings.

Credit Suisse has lowered its target on DSG International, down 5p at 129.9p, from 155p to 95p and on Kesa Electricals, 15¼p cheaper at 261p, from 320p to 265p. The broker warns that profitability at both groups could be hit by regulatory attempts to restrict the extended-warranties market, coupled with growth in the lower-margin e-commerce business. On a worst-case scenario, Credit Suisse sees profits at DSG declining by between 65% and 75% and at Kesa by 30%.

Royal Bank of Scotland, with its partners Belgian-Dutch bank Fortis and Banco Santander of Spain, is stepping up the pressure to take over ABN Amro by doubling its stake in its Dutch rival to more than 8%.

The move gives the consortium more leverage and reduces the cost of the bid, a mixture of cash and shares, by at least a full percentage point, or between €600 million (£420 million) and €700 million. Word is the consortium has bought the extra 4% stake through a series of derivative trades. The RBS bid, worth about €37.76 billion, faces opposition from Barclays, which has tabled an offer worth €31 billion.

Mortgage provider HBOS, up 42½p at 873p, is expected to benefit as Goldman Sachs adds its shares to its 'conviction buy' list. Another mortgage lender, Alliance & Leicester rose 24p to 733p as it looked forward to a Bank of England auction of funds totalling £10 billion. Other banks going better included Barclays, up 2p at 596p, and Lloyds TSB, 4½p better at 536p.

Shares generally clawed back much of yesterday's losses. But trading conditions remained thin as the FTSE 100 index rose 36.1 to 6396.9. On Wall Street this afternoon, the Dow rose 55.20 to 13,833.80.

A bullish trading update from financial information publisher Euromoney lifted the shares 24¼p to 520p. The group, 61%-owned by Daily Mail and General Trust, owner of the Evening Standard, says trading in the second half has continued the encouraging trend of the first six months.

Keep an eye on Serica Energy, veteran oilman Tony Craven Walker's latest exploration vehicle on AIM. The stock, up 6p to 103½p, has been flatlining for months after floating at 107p two years ago. The market has been awaiting some news, and the next few months should provide that. Appraisal work has begun on its Columbus gas discovery in the North Sea between Scotland and Norway, and first detailed results should be coming back by the end of October.

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Taking stock – sectors at a glance

BANKING AND FINANCE
Aberdeen Asset Management is still a buy according to Jason Streets, the head of research at Evolution. The international investment firm's trading update was in line with expectations, with assets at the end of August reaching £91bn as growth in global and emerging market equities continues to be strong.

BUILDING AND PROPERTY
Severfield-Rowen reacted badly to yesterday's news of a surprising fall in revenues amid otherwise in-line firsthalf results. But rival brokers Landsbanki and Altium remain buyers of the shares. Landsbanki continues to see Severfield as an attractively valued play amid a booming UK commercial construction market.

CONSUMER
Bear Stearns has downgraded Dairy Milk maker Cadbury Schweppes from peer perform to underperform with a value of 542p. The broker doubts that Cadbury will spin off its beverage business at a reasonable price before the end of next year. A straight initial public offering is seen as the prime option.

ENGINEERING
Engineer VT Group today said it hoped to sign and finalise its 15-year deal to combine its shipbuilding and navy support operations with BAE Systems within weeks, with the joint venture being fully in place by the end of 2007. Overall trading is currently in line with City expectations, the company said.

HEALTH
Swiss drugmaker Roche is taking legal action against Dr Reddy's Laboratories in the US to prevent the pharma group from marketing a generic version of its osteoporosis drug Boniva. Roche says Boniva is covered by patents running from 2012 to 2023. It is already suing Teva Pharmaceutical over its generic version of the drug.

INDUSTRIALS
Dresdner Kleinwort has raised its target price for SABMiller from 1350p to 1500, saying the brewer's five divisions are 'firing on all cylinders'. The broker added that the group's US investor presentation confirmed that it is rebounding despite the temporary loss of the Amstel brand contract in South Africa.

LEISURE
Cruise holiday operator All Leisure Group is to float on AIM following a placing of 10.92m shares at 180p which will raise around £10m. This would capitalise the company at around £110.5m. Existing shareholders have sold 5.36m shares of the total which are being offered to institutional investors.

MEDIA
Citigroup has initiated Independent News & Media with a sell rating, citing potential obstacles to earnings growth. The group's UK publication, The Independent, is starting to see its share gain from changing to the compact format tail off, while titles in other countries are likely to experience tougher trading conditions.

NATURAL RESOURCES
Caledon Resources received a much needed boost from the news that it had sold more than 60,000 tonnes of coking coal from its Cook mine in Queensland in September. The group has also taken delivery of its new Voest Alpine ABM Bolter miner which would soon be taken underground to complete the Magatar mining system.

RETAILING
Troubled specialist sofa retailer SCS Upholstery insists that it has a rosy future despite a slump in profits last year and weak current trading. The 95-strong Sunderland-based stores group's pre-tax profits fell from £17.2m to £7.1m in the 10 months to 28 July as sales of bigticket items suffered.

SUPPORT SERVICES
Arden was pleased with yesterday's half-year numbers from Hat Pin, and has repeated its buy rating, claiming the shares remain 'very attractive'. The executive headhunter's pre-tax profits grew from £696,000 to £914,000, and it expects to see second-half revenues boosted by its new offices in Dubai and Tokyo.

TECHNOLOGY
CSR, the Cambridge-based bluetooth specialist, has surprised analysts at Landsbanki by appointing a new boss a mere 18 months after the last one started. Joep Van Beurden will replace the current chief executive, John Scarisbrick, in November, with the short period of transition also astounding experts.

TELECOMS
French telecom equipment maker Alcatel-Lucent has signed an agreement to supply Telecom Corporation of New Zealand with switching and routing products to support next-generation residential services. The financial terms of the contract have not been made known, but brokers say it is likely to be a fairly sizable contract.

TRANSPORT
Troubled Italian airline Alitalia says it needs an international partner to compete with other major European rivals. Chairman Maurizio Prato told a parliamentary hearing he does not rule out tie-ups with domestic players, but the airline's objective is to reach an international alliance. Alitalia is in a comatose state.

UTILITIES
ElectricitÈ de France is looking to invest in a coal-fired power plant in Vietnam, but it would be less than the £2bn reported. The power generator says that figure corresponds to the construction cost of the entire 3600 MW power plant. EDF is only interested in the first two phases of the project with capacity of 1200 MW.