Market Report: Chill Christmas wind blows through high street

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The Independent Online

For the second successive day a leading stockbroker warned investors that this Christmas is unlikely to be a very happy one for many UK retailers.

Panmure Gordon focused its attention on clothing retailers and said that unfavourable fashion trends alongside the wet and mild weather is the worst possible combination for the sector in the run-up to the festive season. This compounds the already weak trading conditions felt by many players because of the fragile state of the UK consumer and is likely to see profit margins hit hard across the industry.

The broker was most downbeat about Debenhams, off 4.25p to 189.75p, as it downgraded the stock to an outright "sell" from "hold". Panmure said: "We believe its years in the private arena saw the best for the company and that there is little value to be extracted for current investors."

Moving on to Next, 1p better at 1,795p, Panmure predicted that the retailer's second-half sales will come in below management forecasts and that profits at its shops will continue to fall. On Marks & Spencer, 3.5p weaker at 681.5p, it expressed scepticism that the group will be able to sustain the sales growth seen in its recent interim results while warning that the business of reviving French Connection, 8p weaker at 208p, is likely to take a long-time.

Elsewhere in the retail sector, Ted Baker fell 2p to 595p, Woolworths lost 0.25p to 36.5p, Home Retail dropped 4.25p to 404.25p and Monsoon ticked 0.5p lower to 393p. Panmure's comments came hot on the heels of equally bearish words from Seymour Pierce on Monday. Richard Ratner, its retail analyst, predicted the worst Christmas for UK retailers in 25 years. He said that the last two weeks have been "worse than a disaster" for clothing retailers and hinted that a series of profit warnings could emerge before Christmas.

Meanwhile, the FTSE 100 fell for the sixth session in a row, losing 24 points to end the day at 6,025. Few dealers yesterday were predicting much of a rally into the new year. The mining sector was once again largely to blame for the weakness of the blue-chip index. BHP Billiton fell 20p to 937p, Vedanta Resources lost 26p to 1,275p, Rio Tinto retreated 30p to 2,658p and Xstrata went 12p lower to 2,203p.

Along with the negative sentiment towards the sector, Anglo American, 31p lower at 2,357p, had to contend with a downgrade from HSBC Securities. The broker said that Anglo now trades at too much of a premium to rivals. It also dismissed recent speculation of a merger between Anglo and Rio Tinto, arguing that such a tie-up is unlikely to benefit Rio.

British Energy fell 12.5p to 467.6p, while Drax lost 8.5p to 814p as Collins Stewart warned that both players are very exposed to further falls in the US dollar exchange rate. The broker said: "Both UK generators are exposed to dollar changes, as ultimately UK electricity prices are dollar linked." Collins Stewart estimates that if the dollar were to fall to $2.10 against the pound, it would knock around 14 per cent off the value of British Energy and 18 per cent off Drax.

Yell bucked the negative trend, gaining 13p to 570p, on the back of an upgrade from Goldman Sachs. The heavyweight US broker hiked its rating on the directories group to "buy" from "neutral" and said recent concerns over the integration of Yell's Transwestern acquisition have been overdone. Prior to yesterday's gain, Yell shares had under-performed the media sector by 8 per cent since the start of the month.

Forth Ports, 27p better at 2,015p, was set alight by takeover speculation. Dealers reported talk that a private equity consortium is close to tabling a bid for the port operator. In fact, one story doing the rounds of the City late on in the session suggested that the bidder is poised to launch a dawn raid on the company tomorrow and could be willing to pay as much as 2,200p for stock.

Rightmove, 19.75p higher at 323.5p, was also buoyed by bid rumours. Countrywide, the estate agent which controls 22 per cent of Rightmove and is considering a takeover offer from 3i, gained 9.75p to 505.25p.

Among smaller companies, takeover talk powered Biofuels, 2p stronger at 46p. However, analysts were sceptical that an offer will emerge for the company given its expansion is by no means financed and the fact it already carries a debt burden of £85m against a market capitalisation of just £21m.