Market Report: Bearish broker deals big blow to Punch

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The Independent Online

The pubs company Punch Taverns was in focus yesterday after a report suggested that the debt-laden group was heading for "zombie status". Charles Winston, an analyst at the broker Redburn Partners, said shareholders might be left with nothing in a scenario where all of Punch's cash was trapped in securitisation vehicles. His comment depressed the stock – which has fallen by 90 per cent since last year – to a record low of 48p in early trading.

But the company fought back, saying the research was based on factual inaccuracies. Later, after a conversation with Punch, Mr Winston admitted he had made a material error in his initial assessment but stuck to his substantive conclusions. The key error, he said, was a misunderstanding of the terms under which Punch can buy in (and cancel) its bonds from market, and their implications for the amount of capital required to finance the buy-back exercise. However, he reiterated his view that even if Punch was able to cancel some damaging bonds, its cash was likely to be trapped in its three securitisation vehicles for many years.

"As such, our conclusion that all of Punch's resources will be directed towards its debt providers for tax, leaving nothing for equity investors, still holds," he added. "In turn, our conclusion that Punch equity is effectively worthless for investors also holds, we believe."

After falling more than 20 per cent, the stock recovered to 60p, down 2.44 per cent or 1.5p, by the close of play.

Elsewhere, Premier Foods gained 15.79 per cent or 3.75p to 27.5p amid speculation that John Mouton's private equity group Alchemy Partners was mulling a bid for the company. One analyst said the rumour was plausible and a bid might materialise if Alchemy could "live with the risks" that would come with Premier's mountain of debt. "It is not inconceivable as, beneath all the risks, it is a cash generative business," he said, but cautioned that it was becoming increasingly hard to trust the chatter about Premier. "There was the United Biscuits interest in Mr Kipling [the cakes division] but that went nowhere. Then a few weeks ago there were rumours that Heinz was interested in Sharwood's [the Asian sauces brand]," he said.

Overall, the FTSE 100 was up 21.41 points at 4,388.69 and the FTSE 250 advanced 56.02 points to 6,320.39. Tullow Oil was the biggest mover on the FTSE 100, gaining 20.38 per cent or 101p to close at 596.5p after it issued a positive drilling update, detailing new oil finds and lifting sentiment across the exploration and production sector. The Mexican silver mining group Fresnillo, in second place, rose by 18.43 per cent, or 26p, to close at 167.1p as investors moved to capitalise on recent losses now that its relegation to the FTSE 250 has been confirmed. Similar factors were at play with the South African platinum producer Lonmin, which rose 7.5 per cent, or 49.5p, to 709.5p, and Wood Group, the oil services company, which advanced by 5.31 per cent, or 9.7p, to 192.5p.

A growing consensus that the Organisation of the Petroleum Exporting Countries will order a major cut in production when it meets next week lifted crude oil futures. BP was up 4.83 per cent, or 24.75p, at 537.25p, while BG was up 5.38 per cent, or 50.5p, at 989.5p. On the downside, the insurance group Aviva fell by 2.86 per cent, or 11.75p, to 399p after Goldman Sachs removed the stock from its "conviction buy" list and Royal Bank of Scotland reduced its target price from 784p to 556p. The news prompted a round of profit taking across the sector, which has outperformed rivals recently. As a result, Friends Provident fell 9.32 per cent, or 8.2p, to 79.8p while Standard Life was down 6.62 per cent, or 19p, at 268p.

On the FTSE 250, the financial services group Cattles – down 18.92 per cent, or 7p, at 30p – was the weakest after it confirmed market speculation that its application for a banking licence was "proceeding at a slower pace" than it had anticipated. It said: "Given the current banking environment and market conditions, the FSA [the UK market regulator] is proposing more stringent tests for firms, particularly on liquidity and stress testing."

The media group Aegis gained 1.14 per cent, or 0.75p, to close at 66.5p after UBS said an offer from its French rival Havas was still on the cards and might be one of the "transformational" deals that arise next year. "As a reminder, Vincent Bollore [chairman of Havas] owns 29 per cent of Aegis and has attempted to gain board representations a number of times previously," the broker said.

"A Havas/Aegis combination would yield a complementary business mix as well as the scale benefits, given their size relative to their peers. Scale is crucial in media buying, and we expect the synergies in such a deal to be significant."

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