Market Report: BSkyB heads south on bleak advertising outlook

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BSkyB was weak yesterday after JP Morgan reignited investor concerns about the outlook for advertising revenues.

"We think high-margin advertising revenues could slow, given the deteriorating macro environment," the broker said, downgrading the stock to "underweight" from "overweight".

An update from United Business Media, in which the company said it "expects to see cutbacks in certain areas of advertising in 2008 and most likely in 2009", also sparked concerns about a general advertising slowdown across the media industry.

As a result, investors fled exposed stocks, with BSkyB shedding 24p to 470.75p and UBM falling 31.5p to 548.5p

ITV closed down 3.9p at 48.5p and Trinity Mirror lost 8.5p to 149.5p.

It was a bad day in London with the FTSE 100 down 147.9 at 5,518.2. A sell-off in the banking sector, which was exacerbated by early weakness on Wall Street, a spike in the price of oil and concerns about trading conditions in the retail sector, bore on the London benchmark. The FTSE 250 fell 213.9 to 9,107.3.

On the FTSE 100, Thomson Reuters lost 80p to 1,359p after Morgan Stanley reduced its target price for the stock to 1,280p from 1,420p. "What troubles us? Contrary to [the company], we expect consensus downgrades for Reuters Financial organic revenue growth for 2009 and potentially 2010 could cast a pall over the shares," the broker said, reiterating its "underweight" stance on the stock. "Our negative growth forecast is predicated on the ongoing retrenchment in the investment bank headcount and market data spend."

London Stock Exchange reversed course after Wednesday's 14 per cent rise, losing almost 13 per cent or 123.5p to 828.5p. The stock, which topped the benchmark's loser board, was depressed after the company announced a new pan-European equity trading platform venture with Lehman Brothers. "Everyone was excited about a possible big merger or acquisition deal – this isn't it. This [the Lehman deal] is good, but it's not the reason why the shares rallied [on Wednesday]," said one trader.

Leading stocks also returned earlier gains in the banking sector. News from the Belgo-Dutch bank Fortis, which moved to strengthen its capital base yesterday, and from Wall Street, where investors filed out of Citigroup after predictions of further writedowns by analysts at Goldman Sachs, drove investors away from financials. Barclays lost 27.25p to 303.75p despite being upgraded to "overweight" by Morgan Stanley. Reacting to the details of the bank's £4.5bn cash call, the broker said that, "while sceptics will maintain there is not enough capital and the marks are not good enough", it thought the "capital removes the overhang, which is positive for valuation".

Lloyds TSB lost 21.75p to 306.75p as the market continued to speculate it may unveil a bid for Deutsche Postbank or Dresdner Bank. HBOS was also weak and briefly slipped below its 275p-per-share rights issue offer price before closing down 16p at 276p.

Elsewhere, Rolls-Royce was down 24.25p at 328.75p after JP Morgan reduced its target price for the stock to 325p from 425p.

The broker maintained its "underweight" rating on the shares, noting that, at current levels, they were "still slightly expensive for near-peak cyclical earnings, impaired earnings quality and mid single-digit growth".

On the FTSE 250, bid speculation buoyed Inmarsat, the mobile satellite company, which was up 14p at 500p. The rumours bore no names, but suggested a 600p-per-share proposal may be in the offing.

The bears focused on the housebuilders after Credit Suisse urged investors to "avoid the UK housing sector... For 2008, we now expect price declines of 10 per cent and volume declines of 30 per cent, whilst for 2009 we expect prices and volumes to both fall 10 per cent," the broker said. "We now expect material declines in land prices, and suggest that if past trends are repeated we can expect land price deflation of about 50 per cent."

Such price declines, Credit Suisse said, would "likely result in asset impairments and deterioration of [net asset values]".

The assessment sent Persimmon down by 37p to 302p. Barratt Developments lost 4.25p to 67p, Bellway was down 27.75p at 443.25p and Taylor Wimpey was 1.5p weaker at 55p.

Among smaller companies, Regent Inns fell 2.62p to 3.88p after it announced the end of offer talks. Dresdner Kleinwort moved the stock to "sell" from "hold", noting that, against the background of "horrendous" trading conditions in the underlying market and the company's "crippling" debt, "there is a chance the equity becomes worthless".

"Regent must now go it alone," the broker said, "Debt reduction must be the first priority and selling freeholds worth £25m will help cut net debt of £80m. However, deals are likely to be drawn out, given property market weakness, particularly in wet-led leisure assets."