Market report: Monday close

By Rosamund Urwin
Updated: 12:42 EDT, 7 July 2008

Marks & Spencer was off everyone's shopping lists today, putting renewed pressure on Sir Stuart Rose ahead of the AGM on Wednesday.

JPMorgan slashed its price target for the High Street favourite from 345p to 200p and warned that the weaker consumer outlook means M&S will be unable to maintain its dividend in 2010.

Its analysts said Marks' clothing division will struggle in the tougher retail environment while its food business is in need of a major overhaul, with lower prices, better targeted promotions and greater innovation.

The broker predicts fresh misery ahead, with further downgrades this year and next. Other brokers jumped on the bandwagon with equally scathing assessments of future trading.

Pali International retail guru Nick Bubb said the shares remain a sell, and slashed profit forecasts again from £750m to £700m for 2008-9.

Panmure Gordon deepened the gloom, predicting the dividend will be cut from 22.5p to 15p despite last week's denials by M&S finance director Ian Dyson. The broker also said a merger with Sainsbury's could be back on the cards.

M&S shares crashed by 32% last week, and it was the biggest loser among the top flight again today, dropping a further 10p to trade at just 217p.

Panmure's M&S note came as part of a general downgrade of the retail sector. It reduced the target price for a host of stocks, including Next, off 17p to 856p, and Kesa, 4½p lower at 132½p. The broker also cut earnings and dividend forecasts for second-tier chains Debenhams, down 1¼p to 36½p, and French Connection, ¾p cheaper at 75¾p.

The banking sector was a curate's egg for investors. Bradford & Bingley crashed to a fresh low before recovering slightly to trade at 42p, down 8p. Despite having got its rights issue away, RBS shares were dragged down 5¼to 201p as more than 108m shares changed hands after Cazenove cut it to underperform from in line. Lloyds TSB followed their lead, off 3¾p at 295½p.

But Barclays and HBOS managed to buck the trend, with the best news reserved for HBOS shareholders, who saw the stock return to above the 275p of its cash call, settling up 3¾p at 275¼p. Barclays, meanwhile, rose 3p to 282p despite UBS cutting the bank's target price to 380p from 460p.

The FTSE 100 index climbed off Friday's 30-month low, rising 99.9 points to 5512.70, with Wall Street's strong opening providing a further fillip for shares. The Dow climbed 73.03 points to 11288.54 as lower oil prices cheered traders returning from their three-day break.

Carphone Warehouse tussled for the top spot on the Footsie leaderboard with recent entrants Ferrexpo, up 22½p at 350½p, and Invensys, 12½p higher at 252¾p.

The mobile-phone retailer emerged victorious, soaring 11p, or nearly 6%, to 190p after Goldman Sachs renewed coverage with a buy rating ahead of a month-end trading update. Goldman gave Carphone a target of 251p, saying its reduced exposure to the High Street will pay off, but warned of flat revenue in its fixed telecoms division next year.

Despite the price of crude beating a modest retreat, it was another good day for energy-related stocks. Oil services group Amec rocketed 29½p to 915½p, benefiting from an upgrade from Citigroup.

The broker said last week's trading update, though upbeat, was still too cautious, and increased its earnings forecasts for 2008 by 8% and by 9% for 2009 and 2010.

Aim-listed North Sea oil explorer Ithaca jumped 5p to 147½p after rejecting a takeover bid from rival Endeavour, which already owns 2,725,000 shares in the company, or 2.4% of its issued share capital.

TOMORROW'S AGENDA

• Persimmon kicks off a busy week for the housebuilders with an update on how it has fared in the second quarter. The company, which was booted out of the Footsie 100 in the index's most recent shake-up, reported a 24% slump in the first four months of the year, with volumes down 18%. Analysts expect it to say conditions have deteriorated since then, while investors will be bracing themselves for possible writedowns on its land bank after rival Taylor Wimpey wiped £550m off the value of its land bank and sites last week.

• People hoping to get on the property ladder will find little to cheer in the Council of Mortgage Lenders' survey for May. Lending to first-time buyers has sunk by 36% in a year as banks and building societies tighten their criteria. The study is also expected to show a continued resurgence in fixed-rate lending as borrowers look for certainty, particularly now hopes of further rate cuts have faded.