Market report: Tuesday close

By Mickey Clark for MailOnline
Updated:

 

City slurpers reckon Punch Taverns has all the investment allure of the slops tray in a busy pub these days.

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Shares in the UK's biggest pub-chain operator slumped 11¼p to a near-five-year low of 329½p today, with one follower of the company claiming it may be close to breaching its banking covenants.

The independent research specialist Redburn has a sell note on the shares and says Punch is the company giving it most concern as the economy threatens to slide into recession.

Redburn warns that if it does, Punch will probably trip all three restricted payment clauses, thereby denying the company and shareholders accesses to any available cash. It is also possible that even if the economy does not slip into recession, Punch 'will trip the default covenant' on its 'B' bond structure in late 2009 or early 2010.

Redburn sees little alternative for Punch other than to call upon its shareholders for extra funds. It is forecasting a three-for-two rights issue at 310p by early 2010. It says this is not something said lightly or without considerable 'homework'.

Punch has been hard hit by the smoking ban and slowdown in consumer spending, which has resulted in a slump in beer sales. Attempts earlier this year to merge part of its business with that of rival Mitchells & Butlers, down 17¾p at 221&frac50;p, came to nothing, and Punch ruled out the prospect of converting some of its property portfolio into a real estate investment trust for tax purposes.

Shares generally slammed into reverse following an early mark-up. In thin trading conditions, the FTSE 100 index closed down 32.5 to 5634.7.

Wall Street opened lower this afternoon, nervously awaiting the next move on interest rates by the Federal Reserve. It was also undermined by a bigger than expected drop in consumer confidence and the comments of former Fed chairman Alan Greenspan, who says the current economic crisis 'will be with us for a while'. The Dow fell 18.4 at 11860.8 by 6pm.

Retailers suffered some of the biggest falls after digesting more bad news about the housing market where new mortgage approvals have slumped 20%. Next dropped 67½p to 1027p, Tesco 15.9p to 381p, Kesa Electrical 9¼ p to 167p and DSG International 3p to 45p.

Citigroup has cut its rating on Liberty International, down 18½p at 872½, from hold to sell, and raised another property developer, Segro, 14¾p dearer at 400p, from hold to buy.

Property yields are still too low with initial yields ranging from 3.6% to 5.7%. Until the prospect of downward yield shift appears, Citigroup will continue to recommend an underweight stance.

The broker has cut the target price on Liberty from 1100p to 800p and on Segro from 1100p to 450p. It has repeated its hold rating for British Land, down 7p at 750p, with the target cut from 900p to 800p, Hammerson, 25p lighter at 931p, down from 1300p to 1000p, and Land Securities, off 30p at 1290p, cut from 1600p to 1450p.

It has also repeated its buy ratings on Brixton, 7p lower at 250¼p, Derwent London, 24p easier at 1082p, and Great Portland Estates, 5½p softer at 355½p. It has cut Brixton from 430p to 310p, Derwent from 1600p to 1300p and Great Portland from 450p to 420p.

Cash-and-carry retailer Booker shaded ½p to 22¼p after Investec Securities began placing 300m shares in the company at 22p by some of the original shareholders.

Among the sellers were Icelandic raider Baugur, which has sold its entire 34.1% stake.

Stock market information

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Financial data - newspaper and pen

TOMORROW'S AGENDA

? After Go-Ahead last week said soaring petrol prices are prompting commuters to ditch their cars in favour of public transport, rival Stagecoach reports annual results. The rail and bus operator is likely to be upbeat, with analysts forecasting a 7% jump in profits to £173m thanks to a strong performance from its trains division.

? All eyes will be on the US Federal Reserve as it announces its interest rates decision. It is tipped to keep the benchmark rate on hold at 2%, but traders will scrutinise its post-meeting statement for hints as to the extent rates may rise in the coming months to curb inflation.

? Engineering consultancy WS Atkins is expected to say it is reaping the rewards of booming business in the Middle East when it publishes full-year figures. Broker Panmure Gordon predicts pre-tax profits of £92m, up 31% on last year.

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