Market Report: CSFB sounds a gloomy note on Kingfisher

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The Independent Online

Trading has taken another turn for the worse at B&Q, says the broker to its parent company, Kingfisher.

CSFB has taken the axe to its profit forecasts for Kingfisher for the second time in five weeks. And it is warning that B&Q might have to launch a massive sale to clear excess stocks, a move that would depress profits yet further.

After a 5 per cent cut after the company's disappointing trading update in May, CSFB lopped a further 8 per cent from its Kingfisher profit forecast yesterday, and warned of more to come. In a note to clients, the broker talked of the "provisionality" of, and the "downside risk" to, its forecasts. "The latter emanates from the known above-average inventory position at B&Q," it said.

The rule of thumb is that a company ought to issue a profits warning if it looks as though profits will fall more than 10 per cent below the consensus of market estimates. That consensus estimate is sure to come down now, since other analysts closely follow what house brokers publish. Most interesting in yesterday's CSFB note was the suggestion that shareholders can now expect only a modest dividend increase this year. Expect only a 3 per cent rise to 11p.

Kingfisher shares fell 0.25p to 246p, after a much bigger fall the previous day. Travis Perkins, which has just bought Wickes, triggered the sell-off across the DIY sector with its profits warning on Monday. Yesterday, Travis Perkins shares fell a further 63p to 1,575p, while GUS - the owner of Homebase - fell 9.5p to 867p. It seems that the collapse in house purchases means fewer people doing DIY or building work to make their new homes their own.

In fact, there was value destruction across the construction and related sectors yesterday. George Wimpey, a housebuilder that seems acutely affected by the reduced number of house purchases, issued a profits warning that sent its shares down 19.5p to 436.5p, and knocked its peers too. Bovis Homes, off 23p at 692p, Redrow, 9.75p lower at 411.75p, and Persimmon, down 8p at 780p, were among the other notable fallers.

And then there were the suppliers to the housebuilders. BPB, which makes plasterboard, was 16.5p lower at 519.5p, the worst in the FTSE 100, amid fears that demand will slide just as new production capacity comes on stream across the industry. Wolseley, the plumbing and timber supplier, was knocked by 13p to 1,177p, and Hanson, the brick maker, crumbled 5.5p to 534.5p. CRH, an Irish building materials firm, issued a profits warning, sending its shares down €0.45 to €21.65.

For the second day in a row, the mid-cap FTSE 250, whose members are more likely to do most of their business in the UK, was headed south (by 27.1 points to 7,407.4) while the FTSE 100 of the UK's biggest companies ended in positive territory. It was up 5.8 at 5,190.1 as the heavyweight oil and drug stocks climbed higher. BP was up 5.5p at 622.5p after promising record profits, and Shell rose a ha'penny to 563.75p. The highly rated team of media analysts at UBS tried to douse the speculation about a joint private equity-Time Warner bid for ITV, but the broadcaster's shares rose another 0.75p to 129.25p. UBS cautioned: "ITV's inherent cyclicality coupled with its pension deficit, and the need to secure further concessions from Ofcom, make it relatively high risk for a financial buyer in our view.

"While these risks could be reduced by the presence of an industrial investor, we think a bid is more of a possibility than a probability at current prices."

Shares in Henderson, the fund management group, slid a ha'penny as Cazenove, the blue-blooded broker, turned negative. Institutions have been pulling their money out of Henderson's funds, and Cazenove is particularly concerned that performance fees will slump because of poor returns from Henderson's hedge fund business. The stock ended at 60p.

Xansa was headed in the opposite direction, up 2p to 92.5p amid talk that a global IT services company might be taking a look with a view to bidding. Xansa struck an optimistic tone in its most recent results, saying it was in line to profit from the outsourcing of business administration to its centres in India.

Investors were awaiting developments on Somerfield (off 0.5p at 191p), where one of the two remaining bid consortia is in turmoil over Baugur's participation.

Optimisa, a marketing firm, was up 25p to 675p after the Tchenguiz family subscribed for £250,000 of new shares. Both Optimisa and the Tchenguiz family are also putting more cash into Edengene, another marketing firm, which, in effect, they now control. Investors salivated about the opportunities for cross-selling or corporate activity involving the two businesses.

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