Yesterday's trading: New Star falling on credit crunch

By Geoff Foster for MailOnline
Updated: 03:10 EDT, 7 March 2008

Wouldn't John Duffield just love to turn the clock back 12 months. This time last year the colourful boss of New Star Asset Management was happy as Larry after trousering a cool £158m when he reduced his stake in the fund manager to 7.6% from 25% by selling, along with other fortunate directors, shares at 455p. The company was then worth around £1bn, now it is valued just above £200m.

Geoff Foster, Daily Mail

It has fallen so far from grace during the credit crunch that Duffield now faces the ignominy of seeing New Star booted out of the FTSE 250 next week.

Deutsche Bank yesterday probably sealed its fate by downgrading the stock to sell from buy. It is fundamentally negative on New Star's business model and growth prospects in the current market environment.

The shares dropped 8¼p to a record low of 87½p. The November 2005 flotation price was 225p. A profits warning in January saw the shares collapse from 150p to 100p as investors feared for the group's prospects in 2008. Investors withdrew £500m of their assets in the second half of the year, reflecting the poor performance of some funds.

Rumours have been rife of late that client redemptions have accelerated and the group has been forced to liquidate portfolios in the small to medium sized area of the market.

There is the possibility that the current depressed valuation could tempt Duffield to buy New Star back, or sell it on as he did with his previous venture, Jupiter Asset Management.

Financials dragged the Footsie 87.1 points lower to 5,766.4. The Bank of England's decision to leave interest rates on hold didn't do sentiment any favours, but it was further depressing news from across the Pond about the housing market that really got under dealers' fingernails.

Wall Street plummeted 150 points at the

opening after a report showed that US mortgage repossessions reached a record high in the fourth quarter. The market then heard that Thornburg Mortgage Inc had defaulted, while shares of Merrill Lynch slumped to a four-and-a-half year low after the giant broker said it will stop funding home loans at its First Franklin subsidiary as a result of the deterioration of the sub-prime lending market.

Banks were again friendless with the general consensus being that generous dividend increases may have placated investors during the recent reporting season, but there is plenty more toxic sub-prime waste to be revealed in the coming months.

Convalescence will be lengthy. Barclays lost 20½p to 427p, Royal Bank of Scotland 13¾p to 341¼p and Lloyds TSB 14½p to 413¾p.

Worries about rising fuel costs as the record oil price traded above $105 a barrel left cruise giant Carnival in deep water at 1949p, down 68p.

Fund managers loaded their trolleys up with supermarket stocks on consideration of their defensive qualities. Tesco jumped 11¼p to 403p after also buying back 750,000 of its owns shares at 388.97p. William Morrison edged up 1¼p to 295¾p on hopes that a £750m share buy-back will be announced with the forthcoming results.

Underwriter Catlin rose 23¼p to 400¼p following good results and upbeat comments about prospects. British satellite communications firm Inmarsat, on the other hand, slumped 25¼p to 466¾p following disappointing fourth-quarter figures.

Almost 7m Ennstone changed hands amid talk of an imminent bid of 42p a share. Chased up to 33¾p, the shares reacted to finish 1½p dearer at 30¾p after the aggregates company said it had not received an approach.

Mike Ashley's retailer Sports Direct shed 2¾p to 108¾p after dealers heard that its trading statement had been put back three days to March 13. Unlucky for some.

A recommendation from niche broker Fairfax helped Trifast add 4¾p at 62½p. The global industrial fasteners group's rating does not reflect the company's competitive advantages, its resultant high margins or its growth profile.

SQS jumped 25p to 270½p following an Evolution recommendation in the wake of the excellent results. Its target price is 330p. Profit-taking following a solid set of results left SVG Capital 8½p off at 702p.

Afren gushed 7p to 134½p on its strategic acquisition of Devon Energy's interests in Cote D'Ivoire for £102.5m. Broker Fox Davies says this acquisition de-risks Afren portfolio by adding production assets to the current exploration and production asset mix of the company. Additionally, it allows it to reduce its geopolitical risk by spreading activities and exposure out of Nigeria.

• FUN and games at Aim-listed Z Group as shares of the cash shell shot up 3½p to 53/8p. It followed news that former non-executive director Ian Smith had bought a 9.96% stake at 2¼p, increasing his shareholding to

10.1%. Marcus Yeoman had acquired 5%. The stock came from Elizabeth Wilkinson and Gareth Mallet and dealers now hope the stake swap will be a precursor to a fullscale offer for the underperformer.