Market report: Monday close
Shares in Britain's biggest pubs operator, Punch Taverns, rallied a further 54½p to 312p amid mounting speculation that management may be close to calling time on its status as a publicly quoted company.
Movers: Latest from the stock exchange
The fall in the share price of Punch and other pub companies has been so dramatic that they are starting to appeal to private-equity companies on the lookout for a bargain.
Word is CVC Capital Partners is hoping to take advantage of the 70% collapse in Punch's share price during the past year to launch a bid. Punch and its 7600-strong pubs chain is now valued at just £700m.
Like all pub companies, Punch has suffered a drop in sales, hit by the smoking ban last year, cheap booze competition from the supermarkets and the consumer downturn. The credit crunch has also prevented the group from taking advantage of the tax incentives of converting its property portfolio into a real estate investment trust. The speculation surrounding Punch also spurred on rivals, such as JD Wetherspoon, 14¼p better at 233¼p, and Mitchells & Butlers, up 25¼p at 280¾p.
Shares generally reversed early gains after interim numbers from HSBC, down 9p at 828p, failed to impress everyone. The FTSE 100 index fell 34.5 to 5320.2. Citigroup has added to investors' woes by warning the US economic slowdown will hit real economic activity, not just financial markets, and the worst is yet to come. Wall Street extended Friday's losses in early trading this afternoon with the Dow losing 93.3 to 11,233.0.
Lloyds TSB was also in retreat, losing 6¾p at 293¼p, with the shares due to go ex their 11p dividend on Wednesday. On Friday, chief executive Eric Daniels bought 100,000 shares at 296p following last week's interim results which contained further big write-offs. The price has slumped from 571½p since the start of the year.
Miners came under pressure after a further softening of commodity prices such as copper and platinum. Leading the way down was Eurasian Natural Resources, off 58p at 998p, accompanied by Kazakhmys, 135p to 1288p, Vedanta Resources, 156p to 1755p, and Anglo American, 153p to 2622p.
Goldman Sachs has cut its price target on Rentokil Initial, 1p firmer at 70½p, from 106p to 68p and repeated its neutral rating following the group's 'substantial' profit warning on 25 July. The new management team knew Rentokil was operationally challenged when it joined in March, but it is now clear the troubles run deeper than envisaged. Rising fuel costs and a weaker economy are compounding the problems and Goldman now expects the improvements will take up to three years. It has cut its 2008 earnings forecast by 27%, and 2009 estimate by 34%, given the limited clarity on management's strategy and recent share price fall.
Credit Suisse has downgraded Ryanair-15 cents cheaper at €2.22, from neutral to underperform and cut rival easyJet, down 10½p at 320p, from outperform to neutral following their recent profit warnings. It has become increasingly clear that the consumer downturn is likely to be prolonged.
The broker added that it is now forecasting full-year losses at earnings a share level for easyJet for September 2009, and Ryanair for March 2009. Credit Suisse said this reflects its assumption of lower average fares this winter. Ryanair's target price has been cut from €2.2 to €2.10 due to a higher net debt estimate, and easyJet's from 425p to 350p, due to a more conservative valuation of its future aircraft orders.
Helical Bar rose 5½p to 313¼p on takeover hopes. Weekend reports claimed the commercial property outfit has been talking to a Norwegian sovereign wealth fund. Cazenove thinks it more likely helical is looking for a partner to help exploit opportunities following the property-market collapse. It rates the shares outperform.
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Tomorrow's agenda
After chief executive Willie Walsh warned last week that the current trading environment is the worst the airline industry has ever faced, British Airways traffic figures for July will be keenly watched to see exactly how bad things have got. Last month, the flagship carrier's load factor - the percentage of seats filled - slumped from 80.5% to 76.7% while premium passengers, from whom BA makes the bulk of its profits, were down 3.1% on a year earlier.
Activity in the service sector is expected to have slowed further in July as the housing market slowdown and volatility in the financial markets take their toll. Last month, the Chartered Institute of Purchasing & supply's snapshot of the sector, which accounts for more than two-thirds of the economy, showed its worst reading since 2001. The headline PMI figure fell to just 47.1. A number below 50 indicates contraction, far below analysts' predictions.
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