Market Report: Kingfisher dives on worries over China losses

Nikhil Kumar
Saturday 27 December 2008 01:00 GMT
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A "sell" note from Investec ensured that there was no festive cheer for Kingfisher this Christmas Eve. The FTSE 100-listed retail group retreated to 130.2p, down 2.54 per cent or 3.4p, after the broker reduced its pre-tax profit estimate for 2010 to £330m to reflect lower profits at the company's b&q chain and increased losses in China. "There remains little or no visibility on the shape or method of recovering Chinese profitability," the broker said, advising investors to move out of the stock.

The wider sector was mixed ahead of the crucial post-Christmas sales. Home Retail Group eased to 205p, down 2.03 per cent or 4.25p, while Debenhams swung to 24p, up 4.35 per cent or 1p.

Overall, volumes were light with the session – the last before Christmas – ending in the early afternoon. The FTSE 100 closed down 39.39 points at 4216.59, with 156 million shares changing hands, well below last week's average of over 1 billion.

The mid-cap FTSE 250 fared better, gaining 27.72 points to 6315.82.

Oil & gas producers were sold as crude prices eased below $39 per barrel on Wednesday, sending BP to 496p, down 8.75p, and Royal Dutch Shell to 1717p, down 39p. Oil prospectors were also weak, with Cairn Energy retreating to 1891p, down 33p.

The pharma group AstraZeneca was on the back foot, losing 3.1 per cent or 84p to 2627p, after the US Food and Drug Administration requested additional information regarding its supplemental new drug application for Seroquel XR in the treatment of major depressive disorders.

Panmure Gordon said the news represented another setback for the company's drug pipeline. "Given the trials for use in major depressive disorders (the biggest subsection of the broader depression market) were in some 7,000 patients, we hope the company will be able to provide the answers the regulator requires without the need for new trials," Panmure analyst Tom Kemp said. "If new trials are required, then this setback could be a two year delay."

Elsewhere, Cadbury unveiled a Christmas Eve treat for investors. The confectioner touched a high of 600p before easing back to 590p on profit taking, down 1.5p, after confirming a conditional agreement to sell its Australian beverages business to Asahi Breweries for £550m. Unless the Coca Cola Company enters a higher offer for the business – it retains a right of negotiation over until the end of March – completion is expected by the end of April next year.

Investec said that the Asahi deal made strategic and financial sense for Cadbury, which can now exit the soft drinks business and focus exclusively on confectionery. The broker added: "While the business would be attractive to Coke strategically ... they will face the challenge of convincing the Australian regulators that there is no anti-trust implication."

Rolls Royce, down 2p at 318p, was unsettled by a "sell" note from Société Générale. Analyst Zafar Khan said that although the group had some strong attributes, the slowdown in global air traffic is likely to impact the company's aftermarket and services business. A fall in the number of jet deliveries is also likely to impact gross margins. "The civil aerospace division should be resilient, but not immune to the coming downturn," he said.

On the second tier, Cattles surged to 12p, up 14.29 per cent or 1.5p, as bargain hunters moved in to capitalise on recent losses. The stock has been hit hard in recent weeks as investors sold out on news of delay in the company's application for a banking licence.

On the downside, mid-cap engineers registered fresh losses. A sector note from Citigroup – the broker moved Weir, down 1.79 per cent or 5.75p at 315.25p, to "sell" and IMI, down 3.64 per cent or 9.5p at 251.75p, to "hold" – had inspired a round of selling earlier in the week.

Among smaller companies, Innovation Group touched a high of 6p before closing up 0.03p at 5.73p after announcing a new contract for motor outsourcing services with a leading contract hire group. Altium Securities said the award – worth £600,000 per annum on a rolling 12-month basis – while small, was significant in that it shows that "the business continues to win new deals and new clients in spite of the ongoing volatility of the share price".

"The more such deals the group announces, the more attractive [it] will be to potential suitors and the more likely some conclusion will be reached with the private equity approaches that emerged last week," the broker added, referring to recent confirmation that Innovation had rejected an indicative cash offer in the range of 15-20p per share.

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