Market Report: Debt fears weigh on Johnston Press

The Regional newspaper publisher Johnston Press lost more than 19 per cent of its value last night after analysts at Teathers said that a covenant breach looked "likely" in light of new assumptions about the impact of the current advertising slowdown.

"We have amended our advertising fade assumption for Johnston Press in line with out thinking on Trinity [Mirror]," the broker said, anticipating a 19.8 per cent fall in advertising in 2009. Costs, on the other hand, are expected to rise by £6m.

Teathers added: "These numbers also factor in the full-year impact of the cost savings initiatives taken in the second half of 2008. As a result, whereas we saw a covenant breach as improbable in our comments in the wake of [the company's interim management statement]... this now looks likely on our revised numbers." The assessment spooked investors and Johnston closed down 1.88p at 8p.

Elsewhere, Daily Mail & General Trust lost 5.45 per cent or 15p to 260.25p after Panmure Gordon reduced its target price for the stock to 350p from 440p.

Overall, the FTSE 100 was up 76.39 points at 4,208.55 while the FTSE 250 lost 51.05 points to 5,925.98. The session commenced with losses on the benchmark index after official figures revealed that consumer prices had fallen at a faster than expected rate in October, taking the annualised rate of inflation down to 4.5 per cent and raising the spectre of deflation in the months ahead. But the mood changed after a better than expected earnings report for Hewlett Packard prompted some early gains on Wall Street.

The change in sentiment helped Legal & General, the insurance group, to gain almost 8 per cent or 5.4p to 77p, despite some bearish comment from JP Morgan. "We believe L&G is the UK insurer most likely to issue a profit warning," the broker concluded after attending an investor day earlier this week. He added: "Our concern is that L&G are not confirming with the FSA Risk and Capital Update guidance from the end of September and have not changed their reserves despite higher expectations of defaults going forward."

The banking sector traded lower after the inflation data sparked fears of deflation, sending HBOS to 63p, down 15.44 per cent or 11.5p, and Lloyds TSB to 131.2p, down 11.95 per cent or 17.8p. The Royal Bank of Scotland was also weak, losing 6.71 per cent or 3p to 41.7p.

Barclays, which changed the terms of its £7bn proposed fundraising from the Middle East, fell almost 3 per cent or 4.6p to 149.5p. Sandy Chen, analyst at Panmure Gordon, said that plans to make £500m of the original £1.5bn in reserve capital instruments available to institutional investors did not address shareholders' concerns, which focussed on the pre-emption rights and the £300m in commissions paid back to the Middle Eastern investors.

"Whilst these changes may be intended to placate existing shareholders, we don't see that much has actually changed," he added.

Among miners, Lonmin lost 4.69 per cent or 41p to 833p after its new chief executive Ian Farmer unveiled plans to reduce costs. The wider sector was also unsettled as metals prices fell to fresh lows. Xstrata, whose target price was cut to 1400p at Cheuvreux, was down 8.73 per cent or 76.5p at 800p, while Fresnillo retreated to 99p, down 3.7 per cent or 3.8p.

Transport group Stagecoach was weak, down 0.4p at 175.7p, despite a fall in the price of oil after Goldman Sachs trimmed its target price for the stock to 164p from 170p and Cazenove reiterated its "underperform" rating.

"Over the past three recessions, rail passenger volumes have fallen by 4 per cent on average. Given significant subsidy declines (around £118m in 2010 alone) we estimate that Stagecoach needs at least 4 per cent volume growth per annum on its rail franchises in order to keep EBIT [earnings before interest and tax] margins stable," Goldman said, reiterating its "sell" rating.

On the second tier, Wellstream, the oil services group, fell to 367p, down 27.11 per cent or 136.5p, after it said that, given recent market conditions, it was cautious about the outlook for the next year.

In response, Cazenove, which maintains an "outperform" recommendation on the stock, said: "This caution is based on potential delays for some projects – particularly for smaller independent clients, while the company sees no slow down in demand from Petrobras, which accounts for around 50 per cent of Wellstream's earnings."

Also on the downside, Victrex, the high-end polymer manufacturer, was down 11.06 per cent or 58.5p at 470.5p after Morgan Stanley reduced its target price for the stock to 590p from 630p. Sector peer Yule Catto, which was downgraded to "equal-weight" from "overweight" by the broker, lost 1.52 per cent or 1.25p to 81p.