Market Report: Hard-wearing Carpetright fails to catch the euro tide
Tuesday 25 October 2011
As investors placed their faith in the deal-making abilities of the eurozone leaders, Carpetright missed out on the rally yesterday amid claims that its products were too well-made for their own good. The mid-tier retailer – which has already issued several profit warnings in 2011 – dipped 1.9p to 485p ahead of today's trading update, with City voices fearful of yet more bad news.
Dealers, already nervous, were not helped by Numis Securities' James Dilks-Hopper who cut his rating for the high street retailer to "sell", blaming in part the increased durability of its carpets made out of long-lasting polypropylene fibre.
"We are concerned that the extended replacement cycle ... has reduced the size of Carpetright's addressable market," said the analyst, who added that as a result it would not "see the sharp cyclical recovery we had previously expected".
Mr Dilks-Hopper also slashed his pre-tax profits estimates for the year by nearly £2.5m to £14.7m, adding that the company "is unable to justify the current valuation".
It was certainly a mixed day for theretail sector on the FTSE 250, where Kesa Electricals took the top spot by rocketing up nearly 17 per cent. It leapt as the City became increasingly confident it would sell its struggling Comet chain, following talk last Friday that the private equity firm OpCapita was getting closer to winning the race.
Kesa – which was also the subject of reports over the weekend which claimed that it could end up listing in France following the disposal – powered ahead 16p to 110.6p, although some were putting the move down to short-covering.
Despite the FTSE 100 setting a fresh two-month high by rising 59.41 points to 5,548.06 on hopes of an imminent deal on the eurozone, not everyone was convinced. Some were warning that – with many expecting a solution to be unveiled on Wednesday – any disappointment could see the top-tier's positive run of more than 12 per cent in less than three weeks quickly reversed.
UBS was getting optimsitic, helping Aviva as a result. The broker's analysts removed the insurer from their "least preferred" list of sticks, saying it was "the most euro exposed of the UK insurers", as it pushed on 7.4p to 346.7p. They replaced it with RSA (up 0.1 to 112.8p), saying its lack of exposure meant it was likely to miss out on a rally in the eurozone.
Meanwhile, Lloyds was the top performer among the banks, jumping up 1.73p to 34.6p following its comments over the weekend that an IPO of the branches it is being forced to sell could still go ahead.
While the miners were buoyed by strong manufacturing data from China, the oil giants were being cut to size ahead of a rush of results this week. BG and BP both announce their third-quarter figures today, but retreated 27.5p to 1,327p and 1.3p to 438.1p respectively.
Meanwhile, Royal Dutch Shell – whose turn comes on Thursday – slid 7p to 2,242.5p as Evolution Securities predicted the numbers across the sector would fail to match the previous three months.
The drugs groups were told to "innovate or die" by Liberum Capital, with the broker highlighting the recent decision by their US peer Abbott Laboratories to split in two. Saying the move was "a blueprint for those who don't innovate", analysts from Liberum went on to add that companies who failed would "get smaller and often be acquired in deals where the likely rationale is cost-cutting".
They picked out AstraZeneca as "closest to reaching [Abbott's] position", and it initially slumped to 2,990.5p. However, the pharmaceuticals group managed to recover later in the session and closed just 5.5p ahead at 3,046p.
Thomas Cook was still rising on the mid-tier index in the wake of its announcement last week that it had managed to strike a deal with its banks. Its latest shift up of 9.9 per cent to 56.6p means the troubled tour operator has now climbednearly a quarter per cent in the last two sessions, as Natixis increased its pricetarget to 55p from 45p.
Libya may have been liberated officially only at the weekend, but some in the City were already working out who could be about to benefit financially. Espirito Santo's David Brockton highlighted WSP, which said in June it was set to lose more than £5m after having to leave the country.
The analyst suggested that the small-cap building engineer could now begin to claw this back as Libya "starts to re-engage with business", although the company nonetheless ended up moving 1p lower to 224p.
Down on the Alternative Investment Market, Alterian soared up 27.56 per cent to 81p after rejecting an 80p a share approach from SDL, which creeped up 2.5p to 660.5p on the mid-tier index.
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