Market Report: Hammerson hammered by bearish broker

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The Independent Online

The property group Hammerson fell 74.5p, or 9.4 per cent, to 715p last night after Morgan Stanley, worried about the paucity of credit for investing in new property and what it anticipates will be an "extremely difficult recession", warned investors to expect a further 42 per cent fall in the sector's biggest players.

"Our big call is that a virtual absence of new debt for investing in property over the next 12-18 months will mean that rapidly falling interest rates have little lasting effect on the value of direct property or property shares," the broker said, scaling back its capital growth and net asset value (NAV) growth projections.

Highlighting market concern about debt gearing covenants, Morgan Stanley added that, based on its revised NAV projections, "gearing for the UK majors is likely to rise significantly and we expect it to rise to high enough levels in most cases to cause the market to fret about the possibility of breaches in debt gearing covenants".

The broker cut its target price for Hammerson to 480p from 720p while British Land, down 42p at 630p, was downgraded to "underweight" from "equal weight" with a new 340p target, compared to 560p before. Liberty International, down 40.5p at 692.5p, was also cut to "underweight" with a target of 330p, compared to 680p before.

The FTSE 100 fell 258.3, or 5.7 per cent, to 4,272.4, while the FTSE 250 lost 236.4, or 3.5 per cent, to 6,521, after the Bank of England's dramatic decision to slash interest rates from 4.5 to 3 per cent sparked concern about the state of the economy.

Mic Mills, senior trader at ETX Capital, summed up the mood when he said that while it looked like the right decision for the long term, in the short term traders were thinking: "If we've really got to cut rates to 3 per cent, then how bad is it out there?" He added: "Recessionary fears were bad before; they just got a whole lot worse."

On the FTSE 100, much of the downward pressure came from the mining sector, which suffered amid mounting concern about a slump in global demand. The fears precipitated another round of profit-taking as investors locked in gains from last week's rally.

An uninspiring update from Vedanta Resources, down 20.5 per cent or 186.5p at 721.5p, also bore on sentiment. At the close, BHP Billiton was down 171p at 969p while Rio Tinto fell 442p to 2,506p. Anglo American retreated to 1,326p, down 231p, and Antofagasta was down 60.5p at 354.5p.

The FTSE 250-listed ferrochrome producer International Ferro Metals was hit the hardest, down 38.46 per cent or 17.5p at 28p. Analysts at Fairfax said that, at best, ferrochrome prices were likely to halve in the first and second quarters of 2009. "We must now face a reality of markedly lower ferrochrome prices combined with lower sales tonnages. The impact on earnings will be dramatic although we do expect positive cash flow to be maintained for most producers," Fairfax said.

In retail, Cazenove switched its stance on WM Morrison to "in-line" from "outperform", sending the shares 12p south to 252.75p. "An analysis of the consensus estimates suggests that, following a period of repeated and material upgrades to both short and medium-term earnings expectations, this phase may be coming to an end," the broker said. "The interim results also provide cause for concern as to the medium-term margin prospect of the business."

Only six FTSE 100 stocks achieved gains. Marks & Spencer, the strongest on the senior index last night, climbed 8p to 252.75p after Pali International said that, at a stroke, the Bank of England had cut nearly £50m off the retailer's interest bill in the year ahead.

International Power, at third place, drew strength from a positive interim management statement, gaining 7.25p to 263.5p.

On the second tier, housing stocks were mixed after the Bank of England's rate cut. Barratt Developments gained 1.5p to 85p and Persimmon advanced 14p to 336.75p, but Taylor Wimpey fell 1.75p to 13.5p. Bovis Homes, which posted a better-than-feared interim management statement, was up 30.5p at 387.75p.

A cautious update from Cisco Systems, the American network equipment maker, pressured Dimension Data, which retreated 5p to 31p. Pointing out about 40 per cent of Dimension's revenues are Cisco-related, Merrill Lynch said the US company's admission that the challenges it has faced in recent quarters have spread to Europe and beyond was of "particular concern for Dimension Data, given its exposure to emerging markets, particularly in Africa and Asia". The broker said: "We expect [Dimension's] results for 2008 to be in line with expectations. However, we would expect cautious commentary on 2009 expectations, similar to [the] Cisco results."

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