Market Report: EMI accused of over-optimism on downloads

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EMI could have done without the attention paid it by Société Générale yesterday. The French broker warned that growth of digitally downloaded tracks is waning and suggested that industry forecasts might soon have to be downgraded. Such talk left EMI shares, which were among the most actively traded in the FTSE 250, down 2.75p to 241.25p.

SG said: "With the fourth quarter nearly over, it is clear that digital market share will have significantly contracted during this quarter in the key US market." It believes that US digital growth remains lacklustre - a trend that has been increasingly evident in the music market since April 2005. SG is convinced that EMI's hope that digital downloads make up 25 per cent of music sales by 2010 now looks "over-ambitious and vulnerable to reappraisal".

Given these factors, the broker urged investors to abandon EMI shares, especially after their recent gains. Since the middle of October, the stock has risen by nearly 20 per cent amid hopes of a merger between EMI and Warner Music. But SG is sceptical about such a tie-up any time soon, leaving EMI as the broker's "least preferred stock in the sector".

This is the second bit of bad news to hit EMI in the last two weeks. Before Christmas it emerged that Apple, the company owned by Paul McCartney, Ringo Starr and the families of John Lennon and George Harrision, had sued the record company claiming it was owed £30m in unpaid royalties.

Meanwhile, the FTSE 250 dropped 14 points to 8,745. The blue chip index, however, brushed aside Tuesday's sharp drop on Wall Street and put on 27 points to close at a four-and-a-half year high of 5,622. The mining sector was yet again a top performer. Anglo American added 21 points to 1,964p, Rio Tinto rose 5p to 2,640p and Kazakhmys, one of the world's biggest copper makers, improved 16.5p to 760p.

Morgan Stanley was heard making bullish comments about the equity market in the run up to the new year. "We expect the positive market environment to continue through into the first half of next year," said the broker, which is particularly upbeat about the prospects for the IT, media and energy sectors in 2006.

Marks & Spencer closed above the 500p level for the first time since 1998. Shares in the retailer rose 5.75p to 504.25p amid ever growing confidence about Stuart Rose's turnaround strategy. Investor sentiment towards the group and other retailers was boosted by healthy trading figures from department store chain John Lewis. The privately owned retailer reported a 7 per cent rise in like-for-like sales for the month before Christmas and said it had enjoyed particularly strong demand for electronic goods and handbags.

Hence, Matalan rose 5.25p to 183.5p, French Connection added 14.75p to 277p, MFI Furniture ticked 1.25p higher to 79.75p and Burberry added 9.5p to 420p. Food retailers also registered solid gains. Morrison Supermarkets put on 3.25p to 194.25p and Sainsbury's gained 3.5p to 320.5p. Tesco, 2.75p better to 329.5p, boasted that its mobile phone joint venture with O2 has now reached the milestone figure of one million customers. The service was launched just two years ago.

Lower down the pecking order, Multi Group, where the small company entrepreneur Bob Morton is a majority shareholder, held steady at 1.75p despite news of a £13.7m acquisition. The group bought Global Medics, which focuses on placing consultants and senior doctors on contracts with the NHS and private hospitals, in a cash and shares deal. Multi, which has been a cash shell since it sold off its tool hire business, will see Mr Morton remain as a controlling shareholder via his Southwind Ltd investment vehicle.

Max Petroleum jumped 3p to 107.25p after completing a £37m fund raising. WH Ireland and Mirabaud Securities placed 37 million shares at 100p. Max will use the cash to pay for an oil acquisition in Kazakhstan. The exact details of the deal are yet to be announced to the City but investors expect an update on this front early in the new year.

Island Oil & Gas rose 3p to 78.5p with the company expected to start drilling at its site off the coast of Ireland early in 2006. Premier Research improved 3.5p to 113.5p on talk of strong trading at the group.

The Ottoman Fund made its debut on AIM having raised £150m at 100p. The fund plans to make money from providing financing to developers of residential property in Turkey.

Finally, Mercator Gold returned from suspension and lost 0.25p to 5.37p. Trading in the group's shares had been halted as Mercator completed the acquisition of St Barbara Mines' gold exploration assets in Meekatharra, Australia.