A combination of bearish broker comment and investors' fears for the economy bore on Kingfisher, which fell by 5.26 per cent, or 5.5p, to 99p yesterday. The retail group, which owns the DIY chain B&Q, slumped after Goldman Sachs added the stock to its "conviction sell" list.
It said Kingfisher's valuation relative to other UK retailers was unwarranted, given its leveraged balance sheet and its exposure to expensive items such as kitchens and bathrooms. Goldman added: "We believe that UK and French DIY spending, which are highly correlated to UK housing turnover and French housing starts, respectively, are unlikely to recover any time soon." Deutsche Bank reduced its target price for Kingfisher from 200p to 180p.
The pain for Kingfisher caused by these downgrades was compounded by a report from the Halifax, which said UK house prices fell by 2 per cent last month. The bank re-ignited fears that the downturn in the property market might push the economy into recession. Traders said the resulting fallout would hurt consumer-related stocks such as Kingfisher hardest. In the wider retail sector, Goldman moved Debenhams, which fell 0.25p to 34.5p, and Signet, which was down 1.75p at 45.5p, to "sell". Next, which was moved from "buy" to "neutral", fell 5p to 895.5p as investors sold out of the sector. Burberry, which was moved to "sell" by Goldman, also had its target price reduced from 500p to 490p by Deutsche Bank and closed down 26.5p at 403p.
Marks & Spencer, however, bucked the downward trend and gained 6.25p to close at 240.25p following talk of stake-building by a sovereign wealth fund. The speculation follows reports of bid interest from the billionaire Sir Philip Green and a possible merger with J Sainsbury, which fell 8p to 282p yesterday.
Overall, the FTSE 100 lost 122.8 points to close at 5,406.8. The Bank of England's decision to keep interest rates at 5 per cent was in line with market expectations and had little impact on the London benchmark. A weak banking sector, with Lloyds TSB down 12.25p at 292.5p, Barclays down 8.75p at 284.5p and HBOS down 2p to 271.5p, also kept the index in the red and helped to offset early strength on Wall Street.
Thomas Cook was yesterday's biggest loser, falling by 9.22 per cent, or 18.65p, to 183.6p as investors ditched consumer-related stocks. Mining shares, meanwhile, rose after recent weakness. Vedanta Resources gained 56p to reach 2,007p and Antofagasta, which was upgraded by Citigroup from "hold" to "buy", rose by 3.5p to 579.5p. "The sector has fallen by more than 20 per cent since it peaked in May and we believe a number of stocks are offering good value," said Citigroup.
Reckitt Benckiser fell by almost 5 per cent, or 129p, to close at 2,520p after Deutsche Bank lowered its target price for the stock from 3,300p to 3,000p in its review of the European household and personal care (HPC) sector. "In January, we noted the disconnect between the HPC sector valuation and likely downward earnings direction," the broker said in a note. "Since then, the HPC stocks have lost 19 per cent, which compares to a 24 per cent drop in the market, said the broker. Despite likely strong second-quarter results to come, we have cut forecasts and maintain our negative sector bias."
The FTSE 250 lost 134.7 points to close at 8,519.9. F&C Asset Management slumped by 28.18 per cent, or 38.25p, to 97.5p following reports that the private equity investor Dawnay Day, which owns about 26 per cent of F&C, was selling some of its stake via placing. Traders said a placing by Kaupthing of about 94 million shares at between 105p and 115p each was the most likely.
Elsewhere, shares in the housebuilder Barratt Developments rose by 24 per cent, or 13p, to 67p after it said it had strengthened its financial structure by agreeing a revised covenant package, subject to final documentation. The group also announced 1,200 job cuts and said a £400m debt facility, which was due to be paid next April, had been extended to July 2011. Brokers at Cazenove said that while Barratt's new financing would "steady some nerves", it was still one of the riskier stocks in the sector. They added: "Its forward order book has declined by 50 per cent year-on-year and the group remains extremely operationally and financially geared."
On the AIM market, the café group Coffeeheaven International gained 11.64 per cent, or 4.25p, to close at 40.75p. For some weeks, it has been the subject of bid speculation, although its chairman has denied any approach. Last night, it was reported that a takeover bid for the company – which runs coffee bars in central Europe – was likely to materialise soon, with Whitbread and Starbucks again named as the most likely bidders. By the close of play, Whitbread shares were down 58p at 1,020p.Reuse content