The Market Report: Wolseley's exposure to the US worries traders

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Deutsche Bank is convinced that 2005 will be a tough year for Wolseley, so it urged investors yesterday to exit the building materials group as soon as possible.

Deutsche Bank is convinced that 2005 will be a tough year for Wolseley, so it urged investors yesterday to exit the building materials group as soon as possible. Anyone who has been investing in Wolseley this year certainly cannot complain as the group's shares have risen by more than 20 per cent but, according to Deutsche's analysis, the party is about to come to a close.

"In our view most of the group's key markets have peaked and are likely to decline in 2005. As a result we expect growth to stall next year," the German broker said. And it warns that such a scenario is by no means priced into Wolseley's share price.

Deutsche is most worried about the company's exposure to the United States. Wolseley's biggest single market is the American residential sector, which accounts for one-third of group sales, and if the German broker's forecasts prove to be correct it is set for serious contraction in the coming year.

Meanwhile, the company's exposure to the falling dollar can only add to the misery. Of all Europe's building materials players, Wolseley is probably the most exposed to the ever-weakening greenback. Given such downbeat comments it is little wonder that the stock finished as one of the worst performers in the FTSE 100, falling 14p to 887p. The wider index roared higher, gaining 32.5 points to 4,735.7, as the price of oil continued its retreat.

The banking sector led the market higher with HBOS gaining 19.5p to 752p, Royal Bank of Scotland improving 40p to 1,648p, Barclays rising 11p to 551p and Alliance & Leicester adding 19.5p to 870.5p. The falling price of crude is obviously bad news for oil companies and so BP lost 2p to 532p, BG Group fell 1.25p to 361.75p and Premier Oil retreated 19p to 541p.

Sanford Bernstein did AB Foods, down 16p to 732p, no favours with a bearish investment noted in which it argued that shares in the food producer are set for a period of underperformance. Sanford Bernstein worries that the reform of the EU sugar regime in 2006 will have a very negative impact on AB's sugar business, which accounts for 30 per cent of the company's profits. The US broker also predicts that Primark, AB's discount retail business, will come up against increasing competition from supermarkets such as Tesco and Asda as they steadily expand into the clothing arena.

Tomkins ticked 1.75p better to 249.25p after senior managers made presentations to institutional investors in the Square Mile. Royal & SunAlliance climbed 0.75p to 74.5p as brokers were heard to have finally cleared a large seller from the market. The seller is believed to have depressed the stock over the past week.

Virgin Mobile hit a new high of 220p, up 7p, as the mobile phone group launched its Christmas product offering. The package sees Virgin offering "hassle free" phones with eight months of free airtime. Virgin does not own a network but offers low-cost services to customers by piggy-backing on T-Mobile's network in the UK. Dresdner Kleinwort Wasserstein tipped Virgin to have the best product offering of all the providers this year.

In the wake Tuesday's cautious update from Rentokil Initial, Numis Securities downgraded its rival PHS. Shares in the Cardiff-based washroom services group dropped 0.5p to 69p as the broker urged investors to abandon the company ahead of its interim results next week. "Following Rentokil's cautious update we are concerned that prospects for PHS may not be as good as widely expected," the broker said. Analysts were forced to cut their earnings forecasts for PHS in October and Numis fears further downgrades may be on the cards.

Lower down the pecking order, MacLellan Group added 0.5p to 67p after the support services group unveiled a £6m acquisition. ITNet continued its march higher, gaining 6.5p to 277.5p, as traders bet that a formal bid approach will soon be unveiled for the public sector IT specialist. Last month, ITNet said it had entered into "preliminary" takeover talks.

Restaurant Group put on 5p to 114p as gossips talked up the company's prospects. They reckon the group has enjoyed strong trading over the past two months with like-for-like sales up by as much as 14 per cent. XTL Biopharm rose 1.5p to 25.5p as word spread through City dealing rooms that phase II trials of the biotech's hepatitis drug are proceeding well.

Inion, the Finnish healthcare group specialising in the making of biodegradable implants for bone surgery, surged 26 per cent on its AIM debut. The group raised £30m at 130p a share in a heavily oversubscribed placing and will use the cash to both develop its products and to expand its manufacturing base.