Market report: Friday close

By Mickey Clark for MailOnline
Updated:

 

The lack of spare cash in drinkers' pockets appears to be having a detrimental effect on the UK's big pub chains, judging by the collapse in their share prices this year.

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Today, two more City hotshots have added to the hangovers being suffered by investors and publicans the length and breadth of the country by downgrading their ratings in the face of falling beer sales and squeezed profits.

Icelandic broker Landsbanki has cut Enterprise Inns, down 11¼p at 303½p, making it the biggest blue-chip faller, and Mitchells & Butlers, 6½p firmer at 286¼p, from hold to reduce, while rival Credit Suisse has started coverage of Enterprise and Punch Taverns, down 7p at 291¼p, with an underperform rating.

Credit Suisse also has a neutral rating for Mitchells & Butlers, while Landsbanki has moved regional brewers and pub chain operators Greene King, 3½p dearer at 536p, and Marston's, 3¼p cheaper at 195¼p, from hold to reduce.

Enterprise trades just pennies above record lows and has slumped from a peak of 649p since the start of the year. But the pub chains generally have been in decline since before the start of the smoking ban in July last year. Moves by several of them to convert their portfolio of pubs into real estate investment trusts were thwarted by the credit crunch and, in the meantime, the supermarkets have stepped up the pressure by offering cheap booze to consumers at prices the pubs could never hope to compete with.

More and more cash-strapped drinkers are buying their booze from the local supermarket and staying at home, rather than pay at least £3 a pint for their beer.

Landsbanki believes that the household spending outlook in 2009 was not gloomy enough and we should not expect an early return to growth in the pubs sector. Credit is also concerned that profitability will continue to come under pressure during the next year due to a consumer slowdown and inflationary pressures.

Shares failed to live up to best expectations following a strong performance yesterday on Wall Street. The rise in the FTSE 100 index was restricted to a close of 35.40 at 5636.6 in thin trading as shares on Wall Street ran into profit-taking this afternoon, leaving the Dow down 74.66 at 11,640.52. New York will be closed on Monday for Labor Day celebrations.

Banks enjoyed another good showing as the bears continued to be squeezed. Royal Bank of Scotland rose 4¾p to 234¾p, while HBOS put on 10¼p at 315¾p in the face of some grim numbers from rival Bradford & Bingley. Barclays added 3½p at 353p.

Speculative buying continued to be directed at J Sainsbury with the price adding 3¾p to 347¾p. Yesterday, the shares were being chased higher on talk of a renewed bid of 500p a share from its 29% shareholder Qatar Investment Authority. But traders pointed to the low volumes and suggested the shortsellers were being squeezed as they tried to square up their positions, thereby driving the price higher.

Car dealer Pendragon staged a small rally in the wake of yesterday's gloomy profit numbers, adding 0.29p to 9.54p. But Citigroup has halved its price target for the Stratstone and Evans Halshaw car dealer from 20p to 10p. The group has warned that profits for the full year will fall short of last year's £46.5m with sales on the slide.

Some housebuilders came under further selling pressure with Bovis Homes losing 2p at 438p, Bellway 26p at 614p and Berkeley Group 30p at 851p. UBS has raised its target for Bovis from 382p to 440p but is sticking with its neutral rating.

Online gambler PartyGaming drifted 4¼p to 209¼p following its latest trading update. Evolution Securities has repeated its buy rating and 284p target, but reckons the shares are likely to be constrained short term. But once talks with the US Department of Justice have been concluded, PartyGaming could find itself a takeover target.

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Monday's agenda

As an ever-growing number of economists forecast recession, updates on the property market and manufacturing sector will give an indication of how bad things really are. Hometrack is expected to add to the housing sector's misery with its survey for August. The property website said last month that the average price of a property had dropped by almost £8000 since last summer, with prices falling 1.2% in July alone.

Activity in the manufacturing sector sank at its fastest rate in a decade last month as companies were hit by soaring raw-material costs and a decline in orders, according to the Purchasing Managers' Index. Analysts predict the Chartered Institute of Puchasing and Supply's survey for August will make equally gloomy reading, with output deteriorating further and price pressures mounting.

US markets are shut for Labor Day.

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