Stock market report: Monday close

By Mickey Clark for MailOnline
Updated:

 

The smoking ban, competition from the supermarkets and a general lack of cash in people's pockets are continuing to take a heavy toll on the UK's big pub operators and restaurant chains.

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Citigroup says there is little prospect of things improving for the landlord of your friendly local in 2009. In fact, it reckons trading conditions are likely to continue deteriorating.

'We believe the proximity to restrictive cashflow tests means shareholders may have no rights on some cashflows for years if trading deteriorates, even if a covenant breach is averted,' it said.

Citigroup has chosen to downgrade Punch Taverns, off 10½p at 65¾p, from hold to sell and slashed its price target from 200p to 60p.

It has cut its target on Enterprise Inns, 2¼p down at 65¼p, from 220p to 90p, Greene King, 13p better at 482p, from 625p to 525p and Mitchells & Butlers, unchanged at 182¼p, from 275p to 225p, but continues to rate all three a buy. RBS has dropped its rating on Punch from buy to hold because of its high debt level.

Over the weekend, Tim Martin, chairman and founder of the JD Wetherspoon pubs chain, up 4½p at 316p, complained that private-equity companies have saddled some of the pub chains they own with too much debt.

Share prices generally drifted off after an early mark-up. But trading conditions remained desperately thin, with the FTSE 100 index left nursing a loss of 22.4 on the day at 4426.2.

There was little relief for investors on Wall Street this afternoon as share prices opened lower and extended recent losses. The Dow fell 5% last week and was down a further 64.2 at 8534.9 in early trading today.

Banks were marked higher. The open offer for Lloyds TSB, 9.2p better at 140.7p, was only marginally taken up by shareholders and means the bulk of the shares will be left with taxpayers.

The Treasury will own more than half of the enlarged mortgage provider once the merger with HBOS is completed. That prompted Credit Suisse to raise the shares from underperform to neutral despite warning the Treasury may need to dig deeper for more cash at some stage.

Royal Bank of Scotland, up 1.9p at 55.0p, is already almost 60% owned by the Government after it took up the unwanted shares issued as part of its refinancing package. Hopes are growing that it may have found a buyer for its insurance business. Shore Capital continues to rate both Lloyds and HBOS, up 4.3p at 84.1p, as buys.

There were also gains for Barclays, up 5.6p at 184.6p, HSBC, 10¼p better at 638¾p, and Standard Chartered, 9½p firmer at 875p.

Man Group, the UK's largest hedge-fund operator, was one of the biggest casualties of the day, with the price falling 13¾p to 230p. Citigroup has cut its rating from hold to sell and reduced its target from 265p to 200p.

Shares in the London Stock Exchange retreated 4p to 564p following a warning from Chi-X Europe, the electronic market launched in 2007 to compete with European stock exchanges, that fourth-quarter trading volume had dropped 7% in the wake of recent financial-market turmoil.

Last week, the LSE reported that the total number of trades on the equity order book reached 263m, an increase of 25% on 2007. Across the group's equity order books the average daily number of trades grew 24% to 1,038,327.

New Star Asset Management firmed 1.01p to 3.94p after confirming it had received a number of bid approaches. One of the offers is thought to have come from rival fund manager Schroders, down 46p to 815p, which is thought ready to offer £100m. High level of debts has seen New Star's share price plunge from a peak of 485p since July 2007.

Investec Securities has cut its rating on bus and train operators Arriva, 25½p lighter at 564p, and Go-Ahead, 4p lower at 1160p, from hold to sell. It says Arriva is vulnerable to further profit downgrades while Go-Ahead may be unsuccessful in its attempt to extend its Southern rail franchise which is up for tender.

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Tomorrow's Agenda:

Supermarkets behemoth Tesco is due to update the market on trading over Christmas. Deutsche Bank expects like-for-like growth excluding petrol to be around 2.5%, up on the 2% achieved in the last quarter.

But the figures, which cover only the six weeks to 3 January, are unlikely to settle the debate over whether the chain's discount brands initiative is working, despite TNS data seeming to suggest that customer numbers are up on the launch.

Deutsche's view is that Tesco's position will improve as 2009 goes on, as the discounting range tempts more and more customers to its stores. Its international operations are likely to be the highlight of the statement, aided by the current weakness of sterling.

Premier Foods, the company behind Hovis bread and Mr Kipling cakes, issues a trading update covering the year ending 31 December. JPMorgan expects a robust performance, but says it remains concerned about Premier's deadline of the end of March to decide on a new capital structure.

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