Market report: Wednesday close
It was a miserable day on the High Street as souring broker sentiment sparked a massive sell-off of retail stocks.
Latest: Stock market updates.
In a brutal note, entitled All Holds Barred, Citigroup warned that consumers are facing a slowdown similar in shape and magnitude to the early 1990s, which will not come to an end until 2010 at the earliest.
The broker said the triple whammy of rocketing inflation, a deteriorating housing market and plunging confidence will force people to cut back drastically on spending, leaving the outlook for non-food stores extremely bleak.
This dire prognosis caused it to downgrade eight retailers to sell. Citi now tips only four stocks in the sector as buys. Electrical companies selling bigticket goods are among those likely to suffer most, the note warns, downgrading Currys and PC World owner DSG International from hold to sell. The shares dived 8½p, or 12%, to 49¼p.
DIY stores did not escape the gloom either, with Citigroup advising clients to rid themselves of Home Retail Group, owner of Argos and Homebase, and B&Q group Kingfisher. It predicts the housing-market slump will dent their sales. Kingfisher fell 4.2p to 124.2p while Home Retail lost 5½p to 223¾p.
Department stores chain Debenhams has also fallen out of favour. Its shares, which were trading at 140p a year ago, slumped another 3¼p to a record low of 53¾p. Meanwhile, Citi's downgrade for clothes retailer Next made it the biggest loser in the FTSE 100, off 81p at 1016p.
Others that suffered downgrades at the broker's hands included Kesa Electricals, 19¼p down at 170½p, Signet, 1¼p softer at 55p, and Sports Direct, 9¼p easier at 81p.
The only glimmer of cheer was for Halfords, Marks & Spencer, HMV and WH Smith, which Citi still rates as buys, believing they could produce growth despite the misery. The kinder words did not spare M&S, however, and its shares plunged 12p to 348¼p.
The mass sell-off came despite yesterday's figures from the British Retail Consortium, which showed sales in stores actually rose 1.9% in May - better than expectations. Analysts today warned this could prove merely a blip as the good weather temporarily encouraged consumers to splash out.
Despite another strong showing from the heavyweight oil stocks, with BP topping the leaderboard up 8¾p to 591¾p, the Footsie plunged heavily into the red again today. The blue-chip index closed down 104 points at 5723.30. Wall Street fared little better, the Dow opening 147.5 points lower at 12,142.2.
The banks enjoyed a mark-up following fresh falls this week, but soon ran out of steam and were left nursing heavy losses. Royal Bank of Scotland tumbled 21p to 212¼p after its latest trading update failed to add much to the sum of City knowledge. Deutsche Bank has repeated its hold rating and 320p target on RBS following the success of the group's recent £12bn rights issue.
The price has fallen 22% in the past month, and Panmure Gordon is sticking with its sell rating and 175p target. Again the bank was the most heavily traded stock on the FTSE 100, with more than 174m shares changing hands. Rival HBOS, which is asking shareholders for £4bn, lost early gains to trade below the price of its rights issue, down 34p at 258p. Lloyds TSB was off 18¾p at 332¾p and Barclays was 15p lower at 306½p.
Credit Suisse has slashed its target for pharmaceuticals giant Shire from 823p to 698p, warning that prescription trends for its drugs have been disappointing this year. It maintains an underweight rating.
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TOMORROW'S AGENDA
• Carphone Warehouse delivers full-year results. The mobile phone retailer has already guided the market towards pre-tax profits of between £215m and £220m, so the spotlight instead will fall on the performance of its different divisions. But analysts will be more interested in further information on the £1.1bn joint venture with US electronics giant Best Buy Carphone. The deal will see it enter the wider consumer electronics market, selling goods such as TVs and laptops.
• Argos and Homebase owner Home Retail Group is tipped to add to the retail sector's misery when with a trading update. The company admitted in April that sales were slipping. UBS forecasts like-for-like sales down 2% at Argos and 7.5% at Homebase as a result of poor weather in April and May. Despite the gloomy outlook, the group is still looking to expand, with plans to open new stores and boost its internet offering.
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