Market Report: Rumours of a profit warning leave M&S bereft

Marks & Spencer shares spent most of yesterday under a cloud, amid growing fears that next week's interim results could be accompanied by a profit warning. Dealers traced the unease surrounding M&S to a note by Richard Ratner at Seymour Pierce. Citing "well informed sources", the retail sector supremo suggested that the group has been trading badly recently.

Marks & Spencer shares spent most of yesterday under a cloud, amid growing fears that next week's interim results could be accompanied by a profit warning. Dealers traced the unease surrounding M&S to a note by Richard Ratner at Seymour Pierce. Citing "well informed sources", the retail sector supremo suggested that the group has been trading badly recently.

Although we know that things are tough for clothing retailers at present, things are deteriorating at M&S from a very low base and, worryingly, at quite a pace, according to Mr Ratner. He believes that last week's like-for-like homeware sales were down 27 per cent, with womenswear off 18 per cent and menswear 12 per cent lower. "The performance is quite frankly awful and much worse than other players are though to have registered," the analyst said.

M&S is due to post interim results next Tuesday, and if Mr Ratner's prediction proves to be on the money the retailer will probably have to issue a profit warning. Yesterday M&S, down 2.75p to 356.5p, said it had not decided whether it would give guidance to the market on trading along with the numbers.

Meanwhile, equities on both sides of the Atlantic surged in response to the re-election of George Bush. The FTSE 100 index roared 25.3 points higher to a two-year high of 4,718.5. Drug stocks were particularly strong as investors took the view that Mr Bush is less likely to impose price cuts on medicines than his rival, John Kerry. AstraZeneca, also helped by an upgrade from Lehman Brothers, jumped 62p to 2,319p, GlaxoSmithKline added 23p to 1,193p and Shire Pharmaceuticals improved 8p to 540.5p.

Dealers reported nervous trading in Cable & Wireless, off 0.25p to 106.75p, as the market awaited next week's results from the telecoms group. Analysts reduced their forecasts in the run-up to the numbers to take account of the damage done to the company's Caribbean operations by Hurricane Ivan and by the difficult market conditions its UK businesses face. But it may not be doom and gloom for shareholders. City experts predict C&W will raise its dividend payout.

Morgan Stanley told investors to steer clear of Lloyds TSB, down 1.5p to 437.25p, and switch into its rival HSBC, up 7.5p to 905p. The broker warned: "With insurance markets showing little momentum, softer corporate banking margins we think it will be very difficult for Lloyds TSB to generate earnings growth, putting more pressure on the dividend." It believes that HSBC has much better prospects as it offers superior earnings momentum and more limited exposure to UK consumer banking. Morgan Stanley takes the view that Lloyds TSB stock should trade closer to the 380p level.

Elsewhere, traders were busy getting stuck into Cookson, up 1.5 to 33.5p, ahead of tomorrow's third-quarter trading statement from the engineer. Those who bought into Cookson yesterday were hoping for a robust update from the company, which has seen its shares fall 20 per cent this year. This performance puzzles some market players who note that earnings estimates for the group have risen 23 per cent.

Chrysalis went 6.25p better to 182p as Dresdner Kleinwort Wasserstein slapped a "buy" rating on the radio group after a bullish meeting with its management. The company is believed to have stressed that its underlying business is still growing rapidly, and that music publishing and radio remains a great business to be in.

RAB Capital put on 1.25p to 39.25p after Christopher De Mattos, the finance director at the hedge fund manager, disclosed the purchase of 20,000 shares at 38p, as did fellow executive Schehrezade Sadeque. Both directors now hold 3.6 million shares or a 1 per cent stake in RAB. Meanwhile, Gippsland put on 0.38p to 3.5p after the tantalum explorer completed a feasibility study at its Abu Dabbab site in Egypt. The company hopes to generate sales of more than $500m (£271m) from the project over the next 13 years. Matrix Communications dropped 5p to 142p despite whispers that the IT services company will announce a sponsorship deal with Suzuki today. XTL Biopharmaceuticals ticked 1p better to 21.5p on the back of positive trial results from its hepatitis C drugs, while Antisoma improved 1.25p to 16p after a series of bullish meetings with institutional investors.

Finally, punters should keep an eye out for Caspian Holdings. The Kazakhstan-focused oil and gas explorer will list on AIM today and the group hopes to raise £4m at 23p. This would give Caspian a market capitalisation of £19m. The company's strategy is to focus on shallow oil fields which offer the benefits of lower exploration and development costs that deeper oil deposits.