Avis Europe hits the buffers after downgrade

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Avis Europe skidded off the road yesterday over fears that internal problems were holding back profits at the group. This was compounded by a wider market selloff, which saw few winners at the close.

Investors slammed Avis into reverse after JP Morgan downgraded the stock, sending it 7 per cent lower. The car rental industry had struggled, but was improving, according to the US broker. "However, mounting evidence suggests to us that internal issues at Avis contribute to its underperformance."

While competitors achieved earnings before interest and tax margins of up to 14 per cent in 2006, Avis was only at 7.9 per cent. JP believes the group needs a more aggressive cost restructuring programme, the full implementation of a yield management system and faster progress in improving its business mix to boost returns.

The FTSE 100 started tentatively, edging down in the morning before going into freefall in the afternoon, driven by falling home sales in the US to close 106.1 lower at 6,270.7. It was led down by the financial services companies, with the perennial whipping boy Northern Rock ending the day as the worst performer, down 39p at 693p. The fall followed a downgrade by Lehman Brothers, which raised concerns at "significant uncertainties over the group's direction and earnings power. We see little fundamental support for the shares without the prospect of a reopening of asset-backed wholesale funding markets". Alliance & Leicester was off 4.44 per cent at 1011p.

Land Securities was up in the morning after revealing it was reviewing its business structure. This followed reports that Paul Myners, the group's chairman had instructed chief executive Francis Salway to look into a possible break-up of the company. It strengthened 38p, before being dragged down by the market fall to close unchanged at 1827p.

There was little in the way of bid speculation, with various reheated rumours – Carlsberg for Scottish & Newcastle, anyone? – doing the rounds. One stock that was the focus of talk this week was Icap. While there was no update to the speculation that the Chinese government was negotiating for a stake in the group, the interdealer broker announced record daily volume traded in August. The stock edged up 3.5p, but ended the day 15p down at 498p.

There were three, yes three, stocks in the black at the end of the day, with the miner Vedanta Resources closing highest, up 3.07 per cent at 1847p. It rose after Merrill Lynch upgraded its target price from 2000p to 2450p.

The lead climber on the second string was International Personal Finance. The unsecured cash loan company had suffered a torrid time at the hands of the market after demerging from Friends Provident in July. It slumped from 265p on its first day to 177p last month, before staging a comeback. Yesterday, it rose a further 5.66 per cent at 224p.

The market backed good half-year numbers at Hikma Pharma with pre-tax profits jumping 16.7 per cent. The pharmaceutical group was up 16p at 433p after its branded and injectable drugs gave its interims a welcome shot in the arm.

It was a good news day for Candover Investments, which sold its stake in Dakota, Minnesota & Eastern Railroad Corporation, and took a step closer to securing its takeover of Stork after negotiating with the majority shareholder. It invested in the US railroad, alongside Electra and others 20 years ago. The sale to Canada Pacific, worth $1.48bn (£732m), is expected to close in the next 45 days. It closed up 46p at 2125p.

Among the small caps, F&C Private Equity also benefited from the railway deal, selling its stake for £22.6m and rising 23.3 per cent as a result.

Elsewhere on AIM, the woes continued at Central African Mining, which shed more than 15 per cent at 27p. The controversial company slumped after it pulled its bid for Katanga Mining. The deal hit the rails after the Democratic Republic of Congo pulled its licences in the country. One trader said that institutional buyers were back in at the end of the day.

Another faller was Acertec, which discovered a discrepancy in stock accounting at one of its operations. This overstatement amounts to £1.5m, which it said has existed for more than a year. The company, which makes engineered steel products, is investigating as the news sent the stock spiralling 12 per cent to 127.5p.

Global Marine Energy experienced what one trader called "feisty activity" in the morning, with turnover of six million by lunchtime as it tried to bounce off the previous day's lows.

Finally, the saga behind Paul Reichmann's interest in Canary Wharf and Songbird Estates might not be quite as dramatic as it seemed. The 4.23 per cent he bought on Friday on the open market were B shares, which will add about 0.8 per cent to his holding in the company.

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