Stock market report: Tuesday close
United Utilities lost 13½p to 622½p today after falling out of favour with City big-hitter Goldman Sachs, much to the dismay of some of our biggest pension funds, which rely on United's generous dividend policy.
Updated: Latest stock prices
The moneybags broker has cut its rating from neutral to sell and slashed its target from 674p to 555p. It says there is a real fear the water industry regulator Ofwat will put the squeeze on the company's profits and the cost of borrowing this year. That could force UU to cut its dividend.
There is also a threat to profits from a deflationary environment in 2009 which is being forecast by Goldman's economists. UU shares currently yield almost 7%, but the prices they charge consumers, and subsequent profits, are strictly controlled by the regulator.
Goldman has cut rival Pennon, 13½p better at 551½p, from 543p to 473p while repeating its sell rating. it has also lowered Northumbrian Water's target from 299p to 244p and that of Severn Trent, 5p dearer at 1222p, from 1391p to 1262p. Both are rated at neutral. Northumbrian firmed 2½p to 265p.
Shares generally rallied from a slow start, with prices squeezed higher in thin trading. The FTSE 100 index climbed 50.2 to 4629.8. On Wall Street this afternoon, shares touched a two-month high as the Dow rose 20.5 points to 8973.4.
Stock-market bears have shut down their positions in Next, 136p higher at 1227p, and Debenhams, up 5¾p at 34¼p, following their Christmas trading updates.
Tomorrow it's the turn of Marks & Spencer, up 8¾p at 238¾p. Shore Capital says M&S had a gloomy Christmas and could report a 10% decline in like-for-like sales of general merchandise, with food sales down 7%.
It continues to rate the shares a hold and expects them to outperform with the help of some sector rotation by investors.
However, Pali international has repeated its sell rating and warns it will be 'par for the course' if Christmas sales turn out to be as bad as feared - even if the stores group succeeds in limiting bottom-line damage.
J Sainsbury put on 3p to 325¼p. It kicks off the Christmas trading update for the UK's big three grocers on Thursday. Comments from the likes of Waitrose and Asda suggest that Christmas trading was respectable, thanks to a late rush.
Citigroup expects Sainsbury's like-for-like sales for the 13 weeks to 3 January, to grow by 4%. Sales growth held up well last year, but the broker remains sceptical this will continue in 2009. Rival Merrill Lynch has downgraded Sainsbury's from neutral to underperform and trimmed its target by 10p to 290p.
Tesco, 5.3p cheaper at 355.4p, reports next Tuesday, with like-for-like sales expected to grow 2.5%, helped by extensive opening on Boxing day.
Merrill has cut Tesco from buy to neutral, and has lowered its target from 400p to 370p. It is looking for the group to keep up the pressure on its rivals by continuing to slash prices. Wm Morrison - 2½p firmer at 281¾p, reports on 22 January for the 11 weeks to 18 January, with like-for-like expected to be up 8% despite tougher competition.
Citigroup says this might provide the shares with further scope for improvement. Merrill has repeated its underperform rating on the shares with a 250p target. European banks may seem cheap, according to Citigroup, but the risk of them making retained losses and turning to shareholders for more handouts has still not been fully priced in. it favours the robustness of HSBC, down 21¼p at 657¾p, and the riskier Royal Bank of Scotland, 1½p off at 51p.
Cazenove expects the deteriorating UK economy to continue to favour those banks with an international exposure. It is urging clients to switch out of HSBC and into Standard Chartered, up 76p at 999p, where it has a fair value of 1050p. It expects Standard's capital ratios to increase during the next few years and points out the shares continue to trade at a smaller premium to its peers.
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Tomorrow's agenda
Marks & Spencer updates the City on its performance in the run-up to Christmas, with analysts saying that a profits warning is as likely as not. The UK's largest clothing retailer held two one-day sales and offered heavy discounts during the festive season, and they will have helped to clear stock, but is certain to have eaten into profits. Blue Oar predicts an 8% drop in sales while analysts warn that Sir Stuart Rose may be forced to slash the dividend, given the company's substantial debt pile.
Domonio's appears to be one of the few companies benefiting from the economic downturn, as cash-strapped consumers stay home and console themselves by tucking into takeaway pizza. Sales increased by 8.8% in the third quarter, with analysts forecasting another 6% jump in the last three months of the year. The fast-food delivery chain is doing so well that it is in talks with struggling pub groups to take on some of their sites to open new outlets.
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