Plunging share prices: The 90% Club

It's the club no one wants to join, but the value of companies in the worst-hit sectors of the economy has plunged
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The Independent Online

Private members' clubs have sprung up all over London this year, from those backed by royalty – the Crystal Members Club – to yet another media hangout at Shoreditch House. But there's another club now being revived in the City, and while few want to join, its membership is becoming less exclusive by the day.

The only requirement to join the "90 per cent Club" is that a company's shares must have fallen to less than 10 per cent of the value at its peak over the past three years.

The term was first coined in 2000 following the bursting of the dot.com bubble, as a series of companies saw their share price crumble, but until the credit crunch, the club's membership had been on the wane.

Today, however, though the stock market is nowhere near the nadir of early in the century, the 90 per cent club is once again welcoming new members.

The biggest celebrity of all gracing its notorious club HQ is Northern Rock, which registered a 99 per cent decline in its stock market at the low-point this year. However, the mortgage bank has now been barred, having been nationalised by a reluctant government.

No matter: five new members have already met the entry criteria, according to data compiled by Thomson Reuters. Analysts fear that with the ongoing uncertainty in the financial markets, the club's ranks will swell: a further 11 companies are down 80 per cent, and 14 are in the seventies.

Khuram Chaudhry, the European quantitative equity strategist at Merrill Lynch, said: "This is all related to consumer and credit. That is the weak link in these markets." He added: "There might well be more downside in the future."

The worst performer on the FTSE All Share is sofa retailer Land of Leather, which peaked at 339p in January 2007. Yesterday morning it was at 19p. It has been a torrid year for the group, as its shares fell 47 per cent in one day after warning on full-year profits, before posting disappointing interims in May.

It has been especially hit as consumer spending has fallen dramatically on big-ticket items such as sofas, but it is far from the only retailer affected. Last month, the British Retail Consortium reported sales had fallen for the second month in a row, with confidence plummeting.

Others to make the list of worst performers since their peak include Topps Tiles, down 80 per cent, Blacks Group, off 72.9 per cent, and Woolworths Group, off 74.7 per cent. The Lara Croft owner, SCi Entertainment, has also been a victim of the consumer crunch. One retail analyst said: "There is just panic about the outlook for the sector. Many are highly geared and have had their earnings downgraded, then downgraded again. The next step becomes fears over breaching banking covenants." His conclusion was gloomy. "The outlook is getting worse. I can't see what will stop the decline in its tracks."

Another sector to feature prominently in the "club" is the housebuilders, with Barratt Developments the most beleaguered. The group looked strong in January last year, peaking at 1,279p, but crashed after general weakness in the sector, and specific fears over its gearing, it yesterday fell 92.8 per cent to 91.5p. Taylor Wimpey was also close behind, as it too has given up almost 87.5 per cent to close yesterday at 65p from its peak of 518p in April last year.

One analyst said: "The housebuilders have all been hit, but these two are the pick, quite

simply because of their higher debt levels."

Sentiment in the sector was dented last week as a UBS report said there was no prospect of recovery until at least 2010, as mortgage lending remains depressed. There was also talk that the groups would have to launch rescue rights issues to shore up their balance sheets.

Persimmon will be the last housebuilder to leave the FTSE 100 at the next index reshuffle and it also made the 30 biggest fallers, down 74.6 per cent in 15 months.

Another of the genuine "90 per centers" is Paragon Group of Companies. Given the market conditions, it is no surprise that a specialist lender in the buy-to-let and personalised loan markets has fallen 93.25 per cent from its peak in March 2006 to 81.8p.

Paragon was the worst hit of the main market financial stocks because of its reliance on the securitisation market, according to the Landsbanki analyst Ian Poulter. He said: "Paragon hasn't been able to write new business since the securitisation market effectively closed earlier this year," a problem familiar to followers of Northern Rock.

The worst faller among the listed banking groups is Bradford & Bingley, which warned on profits last week and admitted it would have to discount heavily its rescue rights issue. In just over two years it has fallen 86.7 per cent in value to 71.3p.

Other high street names have suffered, although not as badly because they are bigger and their operations are more diverse. HBOS and Alliance & Leicester are the others to make the top-30 fallers, down 74.7 per cent and 71.9 per cent.

Why haven't others fallen just as far? Mr Chaudhry said: "Banks have seen a little bounce as there has been a mixed perception over the recent rights issues. There is a view among some analysts that earnings downgrades are near a trough. But we don't think this is necessarily true, as 2009 forecast are still punchy."

Rather than being a sector issue, as with the tech bust, this time round the state of the financial markets has dragged a range of companies into trouble. Mr Chaudhry said the threat of inflation this quarter has surpassed the downside risk to growth in the first three months of the year. "Further rises in oil prices inflation would mean inflation heads up and there is more risk to real estate and consumer spending. Historically, UK housing market crashes have been preceded by a spike in oil."

The FTSE 100 index, however, is only 13 per cent off last year's peak, closing at 5,827.3 points yesterday. The market has been supported by the mining and energy companies, which now make up 30 per cent of the index. Their strength comes from the rising price for oil and metal, especially on demand from India and China.

Yet Mr Chaudhry said there was more pain to come outside those sectors: "We are in a situation where inflation is high and the Bank of England can't cut interest rates. This means there are further downside risks to real estate and consumption is likely to be lower." Looks like the 90 per cent club may have to increase the size of its bar.

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