Market Report: Argos owner hit as FTSE 100 falls 1.9 per cent

Home Retail Group came under pressure last night as traders moved out amid worries that the market might be underestimating the threats to its Argos chain.

Credit Suisse argued that Argos might be vulnerable in the medium term as supermarkets increased their non-food ranges. The broker said that compared to Tesco, for instance, Argos had lagged behind in terms of pricing throughout the autumn and winter, despite some discounting in November.

Moreover, the discounts are likely to adversely affect Argos's margins, with Credit Suisse expecting the chain's gross margins for the second half to be down 380 basis points, against 280 basis points previously.

"Our price comparison against Tesco suggests that Argos started [the autumn-winter period] with a significant pricing disadvantage, but that even following a very promotional period through November by Argos, where the level of pricing reduction peaked at nearly 9 per cent, we have found that Tesco has still remained cheaper on a larger number of lines," Credit Suisse said.

"In fact, from our most recent pricing data, Tesco was cheaper by more than 2 per cent on 28 per cent of lines versus 19 per cent for Argos. We also believe the significant discounting throughout November is likely to have impacted gross margins and offset any material sales gains made over the period."

The assessment was supplemented by some weak retail sales data, and left Home Retail 4.2 per cent, or 12.3p, weaker 283.7p. The wider retail sector also fell back, with Kingfisher falling 6.6p to 226.5p, Debenhams losing 2.35p to close at 81.75p and DSG International easing back 0.18p to 35.25p after the Office for National Statistics said that retails sales volumes fell by 0.3 per cent between October and November, confounding expectations of a 0.4 per cent increase.

Overall, the FTSE 100 veered south, with weakness in the retail, resources and banking sectors depressing it by almost 2 per cent, or 102.65, points to 5,217.61. The FTSE 250 was similarly unsettled, shedding 83.95 points to close at 9,057.4.

Banks were hit by worries about Citigroup, whose share issue drew a lower than expected price, and about the Basel Committee's new regulatory proposals for international banking supervision. Sentiment was dampened by fears that revised rules on capital might necessitate another round of fund-raisings.

Credit Suisse said it believed the reforms were "negative for the European banks sector". As a result, Lloyds Banking Group fell 4.48p to 51.1p, Barclays was down 18.15p at 273.85p and Royal Bank of Scotland, closed 1.11p lower at 30.74p.

In the mining sector, the US dollar strengthened after what was seen as a relatively upbeat overnight statement from the Federal Reserve. The greenback's gains pressured metals prices, however, which in turn bore down on mining equities.

Xstrata was among the hardest hit, falling by 57p to 1030p, while Antofagasta slipped 38.5p to 905p and Lonmin lost 63p to close at 1797p. Anglo American was down 73p at 2594p, Kazakhmys closed 47p lower at 1245p and Rio Tinto dropped 53p to at 3134p.

There was little activity on the upside, with only a handful of stocks managing to register gains. These included Invensys, up 2.1p at 283.4p, and G4S up 1.8p at 259.6p. Cadbury was also firm, rising by 3.5p to 792p as traders moved their money out of riskier plays, with some still pegging their hopes on a bid battle for the British confectioner in the new year.

Elsewhere, the data centre specialist Telecity, rallied by 22.8p to 384.6p after Citigroup reiterated its "buy" stance and increased its target price for the stock to 438p.

"The nature of the company's business model means there is significant capital investment upfront (about £60m per data centre) and a large element of fixed costs," the broker said. "As capacity has filled, its earnings margin has increased from 15 per cent in 2007 to 36 per cent in the first half of 2009, and we forecast further improvement to 43 per cent by 2012."

Over in the housing sector, Persimmon enjoyed another session of gains thanks to UBS, which switched its stance on the stock to "buy". The broker said the recent pullback in housing stocks had created a buying opportunity, adding: "With positive newsflow expected in January 2010, we see the current level as a good entry point. The sector has outperformed in 19 out of the last 21 years in the first quarter." Persimmon closed up 11.3p at 440p.

Further afield, Morgan Stanley supported sentiment around Genus, the cattle genetics company, which was 7p stronger at 642p after the broker adopted an "overweight" stance.

"The recent sell-off already discounts the challenging near-term outlook and the current price offers an attractive entry point for long term investors," Morgan Stanley said.

"Genus is set to benefit from population growth and rising food demand; industrialised farming methods and sector consolidation; and emerging market growth coupled with a shift to Western diets [which include more dairy and meat consumption]."

News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
PROMOTED VIDEO
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs ‘Luxury Comedy’ returns, Noel Fielding on why mainstream success scares him and what the future holds for 'The Boosh'
Life and Style
Flow chart: Karl Landsteiner discovered blood types in 1900, yet scientists have still not come up with an explanation for their existence
lifeAll of us have one. Yet even now, it’s a matter of debate what they’re for
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
musicHis latest video is an ode to good grammar. But what do our experts think he’s missed out?
Sport
New Real Madrid signing James Rodríguez with club president Florentino Perez
sportColombian World Cup star completes £63m move to Spain
Travel
Hotel Tour d’Auvergne in Paris launches pay-what-you-want
travelIt seems fraught with financial risk, but the policy has its benefits
Arts and Entertainment
booksThe best children's books for this summer
Life and Style
News to me: family events were recorded in the personal columns
techFamily events used to be marked in the personal columns. But now Facebook has usurped that
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Programme Director - Conduct Risk - London

£850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...

Business Analyst (Agile, SDLC, software)

£45000 - £50000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

Finance Manager - Bank - Leeds - £300/day

£250 - £300 per day + competitive: Orgtel: Finance Manager - Accountant - Bank...

Compliance Officer - CF10, CF11, Compliance Oversight, AML, FX

£100000 - £120000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fi...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn