Market Report: Concern over sliding sales hits Morrisons

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The Independent Online

Fears That Morrisons Supermarket is struggling to revive its Safeway stores, and that overall trading at the group is deteriorating at such a pace it will struggle to meet its profit forecasts for next year, hit sentiment towards the stock yesterday.

Fears That Morrisons Supermarket is struggling to revive its Safeway stores, and that overall trading at the group is deteriorating at such a pace it will struggle to meet its profit forecasts for next year, hit sentiment towards the stock yesterday.

The worry, sparked by a bearish note from Numis Securities, left Morrisons, down 6p to 213p, as the worst performer in the FTSE 100.

Numis did not pull any punches in its assessment of the supermarket group's prospects. The broker said it was concerned that Morrisons had suffered a continued slowdown in sales across the board and warned that even its core business could be running negative like-for-like sales. At the group's trading statement in January, its core operations managed only pedestrian sales growth.

Numis predicted yesterday that Morrisons had a slim chance of meeting next year's profit targets and suggested the ever-increasing competition in the food retail arena could make matters worse for the company. Should the broker be proved correct, and Morrisons be forced into issuing a second warning on profits, the retailer's credibility would be severely dented.

Serious questions would then emerge over its ability to execute a turnaround at Safeway. Numis pointed out scepticism was already high that the Morrisons concept could work in some of the more affluent areas of the South-east.

For the year to the end of January 2006, the broker slashed its profit forecast from £543m to £465m. Numis said: "In the short- to medium-term, the job of integrating Safeway and maintaining performance at the company's core is obviously proving difficult, leaving the stock looking expensive." The broker urged investors to sell the stock in the run-up tonext week's annual results.

Meanwhile, punters piled into BG Group, which stood at the top of the blue-chip gainers' list. Its shares rose8.25p to 422.25p, as rumours of a bid for the gas group once again did the rounds of City dealing rooms. According to yesterday's speculation, an oil major, possibly Shell, is looking to buy the company. BG is, by industry standards, something of a minnow, but boasts expensive reserves.

Carnival jumped 56p to 3,067p as Credit Suisse First Boston came away in a bullish mood from a meeting with the management of the cruise-ship operator. Carnival's management are believed to have indicated that demand remains strong for its cruises, especially for American ships sailing in Europe. CSFB said the group's bosses seemed unperturbed by the high price of fuel, caused by the soaraway oil price. They told the Swiss broker that Carnival would not try to pass on the higher cost to passengers unless the price of crude got closer to $80.

BT, off 2p at 200p, was undermined by Cazenove, which cut its forecasts on the fixed-line telecom carrier. The broker warned that today's statement from Ofcom on local loop unbundling was likely to undermine further the company's attempt to hold on to market share. Bid speculation continued to buzz around Exel, 4.5p higher to 887p. Bulls of the stock reckoned a move on the company could come before the end of the week.

Scottish & Newcastle improved 7p to 454p on news of strong sales at its Russian joint-venture company. Baltika, the former Soviet country's biggest brewer, unveiled a 20 per cent jump in sales during the first two months of the year. Brandes Investment Partners disclosed it had raised its stake in Sainsbury's, off 1.25p to 296.25p, to 11.2 per cent from 10.2. Meanwhile, Peacocks ticked 2.5p better to 248p on whispers it could be the next takeover target in the retail sector.

One can forgive investors for being nervous in advance of today's trading statement from Luminar, down 13.5p to 497p. Of all the days to update the market about its latest sales trends, the nightclub group chose Budget Day, leading to fears it may be planning to bury bad news. The recent exit of Luminar's finance director has also undermined sentiment towards the company in the lead-up to the statement.

Last week, Bridgewell Securities warned that trading probably deteriorated at the company during February, which its traditionally a quiet month for nightclubs. It also suggested that the recent cold weather had made trading problematic for Luminar.

Among small caps, Telspec rose 4p to 18p after its annual results revealed a healthy cash position at the company - of £5.5m - and an improvement in business conditions. The telecoms equipment group is moving into the broadband arena and has switched its production from the UK to China. Finally, Ant, a specialist provider of software to the internet TV market, was tipped to enjoy a strong debut on AIM today.

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