Market report: Friday close
Hovis baker Premier Foods came under intense pressure today as it was hit by a fresh wave of speculation that it is in danger of breaching its banking covenants.
Movers: Latest from the Stock Exchange
The shares were down by more than 50% at one point, prompting calls for a statement from the country's biggest branded foods company. Eventually, a statement was forthcoming in which the group said it was not expecting to breach its banking covenants and denying persistent rumours that it may have to issue new equity. The shares, which fell 23% yesterday, regained some ground after the statement to be down 10p at 22p.
Premier, which also counts Mr Kipling, Sharwood's and Branston among its top 10 brands, admitted at the start of the week that it was in talks with a number of parties over ways to reduce its £1.8bn debt mountain. Sources suggested that CCMP, the former private-equity arm of JPMorgan, could make a major investment via preference shares or a convertible debt instrument.
With banks reluctant to lend, debt is set to be an increasingly ominous theme for markets in coming weeks, hitting housebuilders and others whose growth has been financed by expensive acquisitions. Heavily geared landlord Punch Taverns is a case in point. It owes about £4.5bn, compared with its market value of £436m, and fell 3¼p to 130½p. Meanwhile, JPMorgan halved its target for retailer DSG, down ¾p to 27p on debt worries.
Diageo slid 24½p to 846p as investors digested its move into the bond market. The Guinness brewer has become the first major corporate to tap the bond market since the credit crisis entered its latest phase, with a $1bn (£578m) five-year bond at a fixed rate of 7.375%. Although the US bond issue was priced at 462.5 basis points over Treasuries, traders said the deal showed there were people looking for somewhere to invest.
A tentative rebound saw the FTSE 100 close 171.06 points up to 4032.45 as investors tried to swallow their recession fears and follow last night's lead on Wall Street. But renewed selling of miners - mostly fuelled by growing doubts about China's growth rate - capped gains. Kazakhmys, which announced it was no longer in merger talks, led the fallers, down ¾p at 290p, while Vedanta was 8½p lower at 624p.
Rumours of an imminent cut in production by the Opec oil producers' cartel in response to the slump in the oil price and a note to clients from Goldman Sachs focused attention on the sector. Goldman favours Royal Dutch Shell, up 115p at 1350p, over BP, arguing that its strong marketing division will help to minimise the fall in revenues from lower prices. It upped shell to buy from neutral and lowered BP, up 34¼p to 431¾p, to neutral from buy, with a target of 570p. Investors sought havens in the relative security of pharmaceuticals such as GlaxoSmithKline, up 91p at 1144p, and Smith & Nephew, 37¼p higher at 533½p.
Lara Croft creator SCI Entertainment rose 4¾p to 25p on emerging evidence that Time Warner may be preparing to launch a takeover bid. Time Warner yesterday picked up 5m shares in the group, taking its stake to more than 16%. Time Warner representative Kevin Tsujihara today resigned from the SCI board - paving the way, investors hope, for an offer.
Yesterday's share purchase almost certainly represents the last of a parcel of 30m being hawked around by KBC Peel Hunt on behalf of investor Robert Tchenguiz.
Morgan Stanley is urging clients to switch into bookie Paddy Power at the expense of William Hill, down 28¾p at 166½p. It reckons the major concerns for bookmakers, such as weaker consumer spending, refinancing risk and regulatory and tax risk, appear less significant for Paddy Power.
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Monday's agenda
Retail sales jumped 8.2% in London in August, despite sales across the UK falling, as Western Europeans continued to flock to the capital to take advantage of the strong euro. Food sales remained solid while shoppers kept splashing out on clothing and footwear thanks to price cuts. But there were also signs of shoppers reining in spending as sales of big ticket homeware fell. Whether London's shops have continued to defy the economic downturn will be revealed with the release of September figures from the British Retail Consortium.
Monday will also bring an update on the state of the housing market. Rightmove warned last month that the market is 'on its knees' despite moves by the Government to boost activity. Asking prices fell 1% on the month, leaving them 3.3% lower than the previous year. The online estate agency's price index for October is tipped to make equally gloomy reading.
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