Market Report: Enterprise slumps amid tax and debt worries

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Enterprise Inns slumped by 11 per cent amid caution ahead of its half-year results as the London market came to the end of its seventh-worst week on record yesterday.

The FTSE 250-listed pubs operator fell 13.3p to 107.5p as KBC Peel Hunt warned about the potential for post-election tax rises and what it termed "the open question of refinancing". As a result, the broker said, the shares were unlikely to gain any traction from "any lightening of trading pressure". "If there is any improvement since March, the market will very likely look though it towards the difficult post-election consumer market," KBC added, repeating its "sell" view on the the stock ahead of next week's update.

Numis struck a more optimistic note, saying Enterprise could trade higher "if income starts to stabilise and the bank debt facility is refinanced over the next few months". "Management is likely to remain confident of bank debt falling below £600m by May 2011," the broker said, revising its view from "add" to "buy" and keeping its target price unchanged at 155p.

Enterprise was not the only stock in the red last night. Shares across the board fell prey to the uncertainty induced by the general election outcome, which was supplemented by persistent concerns about southern Europe's sovereign debt crisis and by the read-across from Wall Street, where indices turned lower on the back of an uninspiring jobs report.

In the pubs sector, for instance, Punch Taverns slumped by nearly 13 per cent, or 11p, to 75.15p, while Marston's fell 8.1p, or 8.2 per cent, to 91p and JD Wetherspoon lost nearly 7 per cent, or 33.8p, at 460.2p.

Blue chips continued to slide, with the FTSE 100 index shedding 2.6 per cent, or 137.97 points, to 5,123.02. That took its losses since Tuesday to 7.8 per cent – the London benchmark's worst weekly run since early March last year.

The mid-cap FTSE 250 index fared worse, sinking by an eye-watering 4.2 per cent or 410.85 points, to 9,491.89. The index, which was down about 8.2 per cent over the week, is now more than 10 per cent lower than its peak of 10,690 in late April. The falls came as analysts tried to gauge the impact of the election. BNP Paribas, for example, suggested that the outcome had made a cut in Britain's AAA credit rating more likely.

The ratings agencies were not so worried by the result, with Standard & Poor's saying that its views about the country's creditworthiness were unchanged. Moody's said the outcome did not "directly threaten the Government's AAA rating".

Arnaud Mares, the lead Moody's analyst for UK sovereign ratings, said the agency's view was "that it is not the political but the policy outlook that matters most". Differences between the fiscal plans of the parties were "rather minor", he added.

Miners dominated the handful of blue chips that did manage to trade higher last night, with Rio Tinto rising by 21p to 3,127.5p and Xstrata gaining 14.7p to 1,009p. Investors searching for a safe haven continued to support the gold producer Randgold Resources, which was 55p stronger at 5,635p.

The banking giant HSBC overcame the downdraft, adding 1.2p to close at 629.6p after pleasing the market with its quarterly results. Royal Bank of Scotland, which also updated the market yesterday, was less successful and slid by nearly 6 per cent, or 2.73p, to 45.5p as the general dip in sentiment unsettled most financial stocks.

Barclays, for example, fell by 6 per cent, or 18p, despite a push from UBS, which advised clients to continue buying the stock. "We remain comfortable with the Barclays story," the broker said, keeping its target price unchanged at 426p. "Revenues in the investment bank look set to grow from the current base as newer businesses start to deliver and the earnings impact of the legacy business should fade away over 2010-11."

Elsewhere, the transport group Arriva, which is subject to an agreed acquisition by the Germany state railway company Deutsche Bahn, was broadly unchanged, easing by just 1p to 750p despite the sell-off in the wider market. The stock also overcame downgrades from Goldman Sachs, which switched its view to "neutral", and KBC Peel Hunt, which switched it to "hold", citing the proximity of the shares to its 820p target price.

"It is still early days in the bid process, and there is plenty of time for a possible counter-bid to Deutsche Bahn's 775p," KBC said, abandoning its "buy" recommendation.

Further afield, the fast food group Domino's Pizza UK & Ireland dropped to 324.7p, a fall of more than 4 per cent or 16p, despite the analysts at Altium Securities casting the stock as their "election winner".

"Further upgrades this year look pretty much assured regardless of either the political or macroeconomic backdrop," the broker said, repeating its "buy" view. "Current momentum is very strong and, although the group faces tough comparatives over the year ahead, we remain confident that it will surpass them," Altium added.

"The upgrade cycle will gradually move from being driven by like for like sales to margin expansion, aided in no small part by the very impressive new commissary in West Ashland."

FTSE 100 Risers

RSA Insurance: 117.7p (down 0.2p, 0.2 per cent) Outperforms the market as bargain-hunters move in to capitalise on recent losses.

Shire: 1,401p (down 22p, 1.6 per cent) Avoids sharper falls thanks to defensive credentials, and some support from Morgan Stanley.

British American Tobacco: 2,005p (down 37p, 1.8 per cent) Like Shire, outperforms the market as investors seek defensive plays.

FTSE 100 Fallers

Capita: 770.5p (down 46p, 5.6 per cent) Shore Capital warns on impact of general election outcome, downgrades to "hold" from "buy".

Lloyds Banking Group: 53.53p (down 3.1p, 5.5 per cent) Financial stocks hit by decline in the market's appetite for risk.

Marks & Spencer: 329.7p (down 16.9p, 4.9 per cent) Consumer-related stocks trade lower with the wider market on electoral uncertainty.

FTSE 250 Risers

Petropavlovsk: 1,094p (up 39p, 3.7 per cent) Mining sector stocks dominate the handful of risers across the market.

Hochschild Mining: 235.5p (up 1.5p, 0.6 per cent) Outperforms with the wider sector; precious metals producers find favour.

Talvivaara Mining: 355.3p (down 0.9p, 0.3per cent) Outperforms with the wider sector; RBC cuts target price to 450p, sticks to "outperform" view.

FTSE 250 Fallers

ITV: 55.75p (down 5.25p, 8.6 per cent) Retreats amid profit-taking after posting an interim management statement.

Tomkins: 224.5p (down 8.3p, 3.6 per cent) Dip in market sentiment offsets impact of Panmure Gordon target price upgrade.

Game: 91p (down 3p, 3.2 per cent) Recent rumours of bid interest from US peer Gamestop overshadowed by market weakness.