Yesterday's trading: Punch down but not out

 

What fund manager in their right mind would touch a company with a market capitalisation of £160m and sitting on debts of £4bn-plus? Let's face it, not many if any.

A derelict pub

Troubled: Punch Taverns are almost at rock bottom, but not quite

Investors called time on Punch Taverns when analyst Charlie Winston at Redburn Partners issued a bearish note on the group.

He said the chances of Britain's biggest pubs chain defaulting on its massive debts are sky high and that it could be heading for 'zombie' status, that is effectively worthless to equity investors.

Punch was sold down to a record low of 48p before the company fought back. It claimed there were 'serious, factual errors' in Winston's damning report which had gone into long detail on the status of various of the group's securitised debts.

When Winston immediately admitted that he had misunderstood some of the terms for the repayment of the debt, the shares bounced back strongly to finish a topsy-turvy session only 1½p cheaper at 60p.

Winston did stick to his guns though, and his overall message to the market was that all of Punch's resources will be directed towards its debt providers and for tax, leaving nothing for equity investors for years.

Rival broker Teathers disagrees with Winston's claim. It believes the shares reflect a certain hysteria that is inappropriate. Punch is not a broken business, it is an overgeared one. The broker's target price is 275p.

Rival pubs group Enterprise Inns fell 6½p to 64¾p amid growing fears that 2009 will be a dreadful year for the pub industry.

City watering holes were more populated than dealing rooms as declining trading volumes gave the impression that dealers are beginning to wind down their positions for Christmas. The Footsie showed commendable resilience, retrieving a 59 point deficit to close 21.41 points higher at 4,388.69. The FTSE 250 added 56.02 points more to 6,320.39.

Wall Street shrugged off news that new claims for US jobless benefits surged to a 26 year high last week and an early fall of 144 points to trade 28 higher by the time dealers in London left for home.

Insurers ran in to profit-taking. AIG, which is looking to sell assets around the world to repay $152bn of the US government's rescue package, said that difficult markets may force it to delay its divestment plans. That put the wind up the sector and left Standard Life 19p lower at 268p, Legal & General 5.1p off at 75.4p and Prudential 15¼p to 365p.

Friends Provident lost 8.2p to 79.8p but Panmure Gordon is convinced it will be swallowed by Clive Cowdery's newly floated vehicle Resolution, 3p easier at 113p. As a target FP ticks all the boxes, is liked and known by the Resolution team and appears to be a no brainer. The broker's target price is 102p.

Lloyds TSB shed 9.1p to 158p and HBOS 2.3p to 87.8p ahead of today's HBOS meeting in Birmingham at which its shareholders will vote on Lloyds' rescue bid and a £11.5bn taxpayer bail-out. Oriel is a buyer of the enlarged group and says the value of the combined insurance and investment business is being overlooked.

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Reflecting a Merrill Lynch upgrade to buy from neutral and a 600p price target, electronic equipment group Spectris jumped 54¾p to 485¾p. Still awaiting completion on the £626m sale of Gibsons Energy, its Canadian oil and gas divisions, to private equity players Riverstone and Carlyle, oil equipment services group Hunting rose 57p to 425p to take its market capitalisation to £560m.

Heritage Oil gushed 19p to 204p on news of a significant oil discovery in Uganda. The Kingfisher field is considered by management to be the largest oil discovery, to date, in Sub-Saharan East Africa. Its partner in the find Tullow Oil closed 101p better at 596½p.

A £90.5 share placing and dividend cut left computer services company Logica 4½p off at 64¼p.

News of an £8m operating loss for the fullyear saw Pursuit Dynamics sold down to 57½p before it closed 4¼p lower at 60½p. Dealers were not surprised to see the serial underperformer disappoint yet again and heard gossip that turnover forecasts for next year could be substantially lower than previously published numbers from shop broker Cenkos.

Accident Exchange, which supplies replacement vehicles to accident victims, reversed 1½p to 12¾p following interims. Broker Daniel Stewart called the results 'weak', but broadly in line with November's trading update.

•Contract news lifted Surface Transforms, a company which makes ceramic brake discs for high performance sports cars among other things, 1p to 12p. It has now been awarded three contracts, valued in excess of £150,000, by MBDA, the European defence consortium, for the development of new material technologies to protect attitude control systems used in a range of European guided missiles.