Market Report: Dollar's slide leaves Diageo in the doldrums

As the US dollar continued its slide yesterday Diageo become a talking point in City dealing rooms, with traders concerned that the drinks giant will be adversely affected by the weakness of the greenback at what is a crucial time of year for the drinks company.

As the US dollar continued its slide yesterday Diageo become a talking point in City dealing rooms, with traders concerned that the drinks giant will be adversely affected by the weakness of the greenback at what is a crucial time of year for the drinks company.

Traders are certainly correct to have some worries about Diageo, which closed 15.5p lower at 732p. November and December are crucial months for the group while the US dollar is estimated to account for about 40 per cent of its earnings. This means the profits the company generates in America are worth less once they are converted into pounds, the currency in which Diageo reports results and pays dividends.

The dollar spent most of last month in retreat and few believe this will be reversed any time soon. In fact, most currency analysts take the view that further falls are inevitable given America's massive fiscal and trade deficits.

But it is not all bad news for Diageo shareholders. Paul Walsh, Diageo's chief executive, is believed to have recently made a presentation to the stockbroker UBS in which he described the business as being in "very good shape". He is said to have assured those attending that it is on track to achieve the 7 per cent earnings growth expected by the City.

In the software arena, Sage was in demand, gaining 3.75p to 193p, ahead of today's full-year results statement. Analysts tip Sage to reveal profit growth of about 20 per cent to £181m. Vital to the performance of the stock in the days after the results will be the group's US outlook. There has been some worry that Sage is facing growing competition across the Atlantic.

Marks & Spencer fell 4.75p to 328.25p as Investec Securities pointed to the retailer as particularly vulnerable to the present consumer slowdown. "With consumer spending patterns needing to pick up between now and Christmas for retailers to have a positive outcome over the key trading period, we highlight M&S as vulnerable to poor top-line performance," the broker said.

Investec believes that further discounting is likely at the group before Christmas and suggested that something in the region of "20 per cent off everything" is on the cards. It predicts no let-up in the negative newsflow from M&S in the short-term and so downgraded its profit forecasts.

Paladin Resources gave up 3.5p to 178p on talk that Merrill Lynch had sold a line of up to 17 million shares on behalf of an institutional seller. Liontrust Asset Management fell 17.5p to 292.5p after the group abandoned takeover talks.

Game Group ticked 0.25p lower to 68.25p after Seymour Pierce become the latest broker to turn negative on the computer games retailer. Downgrading Game shares to "underperform" from "hold", Seymour Pierce warned that the UK is facing a shortage of PlayStation 2 consoles due to production and supply problems at the manufacturer Sony.

"Not only does this have an impact on Game's top line due to lost hardware sales, but it will also have a significant knock-on effect on the sale of PlayStation 2 software," the broker warned.

It also reported whispers that Christmas trading has got off to a slow start for the retailer: "Our spies are saying that the expected festive pick-up has not occurred so far." This is all very bad news for the business, which generates the bulk of its profits over Christmas.

Something of a buzz surrounded IFX Group, up 6p to 98p. The spreadbetting and foreign exchange broker revealed a first-half loss of £362,000, compared with a profit of £1.2m in 2003, but in the wake of the figures dealers reported whispers of a massive buy order in the market. According to the talk, one of the Tchenguiz brothers is looking to acquire a 15 per cent stake in IFX and has approached a number of the company's institutional investors via his own broker, Durlacher.

Elsewhere, Incat International had a great debut session on AIM, closing at 135.5p. Incat listed at 128p, at which price it raised £4m, with those buying into the company excited about growth at the software solutions provider to auto and aerospace manufacturers. Yoomedia was unchanged at 17.5p, despite the purchase of 37,000 shares at 17.85p by Andrew Fearon, a director at the company.

Finally, word has it that Croma, the surveillance specialist, will post a solid set of full-year figures today. Investors can expect news of significantly narrowed losses and an indication that profits are on the way.

Sales in the first five months of the company's new financial year are already said to be close to beating those registered for the whole of the last year.

Croma, steady at 5.5p, moved from Ofex to AIM at the end of 2003.

Market Movers

↑ Enterprise Inns 683p (up 20.5p, 3.1 per cent). Brokers upgrade after forecast-busting full-year results from the pubs giant.

↑ Friends Provident 153.25p (up 3p, 2.0 per cent). Says it plans to raise £300m via a securitisation.

↑ Topps Tiles 228p (up 14.5p, 6.8 per cent). Full-year pre-tax profits soar to £33m from £18m a year earlier.

↑ Big Food Group 92.5p (up 3.5p, 3.9 per cent). The retailer's management team accept 95p-a-share takeover bid from major shareholder Baugur.

↑ Novar 162.5p (up 2.5p, 1.6 per cent). Speculation that Cinven is interested in tabling a counter-bid to Melrose's offer excites.

↑ Aricom 37p (up 6p, 19.4 per cent). Says it plans to develop its Kuranakh mine in the far east of Russia.

↑ Stonemartin 5.5p (up 0.5p, 10.0 per cent). Appoints Teather & Greenwood as its nominated adviser.

↑ Scott Tod 56p (up 4.5p, 8.7 per cent). Assures the market that its full-year results will be in line with expectations.

↑ AdVal Group 1.87p (up 0.12p, 6.9 per cent). Says it is on course to achieving profitability.

↓ Rentokil Initial 142p (down 8p, 5.3 per cent). Analysts downgrade their forecasts after the group warns of deteriorating trading conditions.

↓ Compass Group 229.25p (down 11.25p, 4.6 per cent). Full-year results come in at the bottom end of expectations.

↓ Arla Foods 54p (down 3p, 5.3 per cent). Profit-taking after full-year results.

↓ Burren Energy 414.75p (down 19.5p, 4.5 per cent). Suspends drilling at well in Turkmenistan.

↓ Premier Oil 560p (down 12p, 2.1 per cent). Issues yet another disappointing drilling update from Mauritania.

↓ Marchpole 27.5p (down 4p, 12.7 per cent). Starts legal proceedings against designer Ozwald Boateng for an alleged breach of contract.

↓ Pilat Technologies 2.12p (down 0.63p, 22.9 per cent). Third-quarter results from the Israeli group fail to impress the market.