Market Report: HSBC's gloomy report brings Land down to earth

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The Independent Online

A bearish real estate sector review by HSBC depressed Land Securities, which was the worst performer on the London benchmark yesterday.

The commercial property group was down 64p at 1,275p after the broker said it expects "further absolute falls" in sector shares as the "occupier downturn feeds through to rents, cash flows, dividend prospects and property prices".

"We believe that it is too early to look through the downturn, with the market pricing in average portfolio falls of 14 per cent, while our forecast is for an average 23 per cent portfolio fall," said HSBC. It moved Land Securities to "underweight" from "neutral" and cut its target price for the stock from 1,500p to 1,195p.

Liberty International, whose target price was cut from 680p to 565p, was down 23.5p at 881p, while Hammerson, whose target price was reduced from 700p to 610p, fell 13.5p to 902.5p. HSBC predicted share price falls of more than one-third for both stocks.

Overall, the FTSE 100 was up 46.4 at 5,667.2. Strength in the oil & gas sector, where Tullow Oil advanced 32p to 985p as the price of crude rose, and in the mining sector, where the Eurasian Natural Resources Corporation gained 31p to 1,483p, offset the effect of early weakness on Wall Street, where news of jobs cuts at Citigroup and Goldman Sachs dampened sentiment.

The FTSE 250 closed down 40.5 points at 9,320.6.

On the FTSE 100, HBOS closed down 12p at 270.25p, below its 275p-per-share rights issue offer price. Britain's biggest mortgage lender was hurt by the latest Rightmove housing survey, which showed that the average asking price for a house fell by 1.2 per cent in the past month. Also yesterday, Harbinger Capital Partners, the US hedge fund, revealed that it is short more than 3 per cent of the bank, which is trying to raise £4bn via the rights issue. Beside Harbinger, Meditor Capital Management, which has a short position of 0.3 per cent in HBOS, and Lansdowne Partners, which is short 0.58 per cent, came forward under the Financial Services Authority's new disclosure rules.

Elsewhere in the banking sector, Lloyds TSB was down 8.75p at 318.75p as analysts weighed in on reports that it was eyeing Germany's Dresdner Bank. Panmure Gordon reduced its target price for the stock from 410p to 350p, citing the "the rapidly deteriorating UK macro outlook".

Merrill Lynch said that while it would not rule out the possibility of a bid, "a deal is unlikely". The broker added: "A domestic German deal would clearly be able to deliver higher levels of synergies than a foreign bidder. Lloyds TSB trades at a premium to the other UK banks... but the de-rating of the shares in recent weeks have made any deal involving stock much less accretive."

Merrill also pointed out that although Lloyds is better capitalised than its UK peers, it is not strong enough to bid for Dresdner in cash. As for reports that the bank may swap its Scottish Widows business for Dresdner, Merrill said any such move would "run counter to Lloyds's oft stated strategy of driving bancassurance sales."

On the FTSE 250, JKX Oil and Gas climbed 10p to 456.75p after Goldman Sachs reminded investors about the potential of the "forgotten producer".

"Historically, JKX has been the predominant way to invest in the Ukrainian gas sector," the broker said. "However, since April 2008, the re-invigoration of the Regal Petroleum story and the IPO of Cadogan Petroleum has left JKX somewhat in the shade." Goldman upgraded JKX to "buy".

JKX closed up 8p at 454.75p. The broker gave a lift to Regal Petroleum, which was up 7.75p to 292p – Goldman moved its target price for the stock to 344p from 281p. Cadogan Petroleum was down 8.75p at 181.25p.

Debenhams remained weak, losing 1.75p to 42.25p after Landsbanki weighed in on market concern about the company's financial health. "News that Debenhams has apparently extended its creditor days to 96 days suggests that management is very keen to find ways to generate cash," the broker said, reiterating its "reduce" rating on the stock and adding: "Although indications on loan covenants suggest the company has some meaningful leeway on current earnings estimates, should economic conditions deteriorate significantly the company could begin to push the limits."

The Rightmove housing survey kept housebuilders depressed. Persimmon ended its first day on the FTSE 250 down 4.25 per cent at 355p. Taylor Wimpey shed 5p at 64.75p, while Bellway lost 32p to 492p.

On AIM, Coffeeheaven International lost more than 4 per cent to 41.25p after investors took profits even as bid speculation mounted. Market sources cited talk that Whitbread, which was rumoured to be considering a 55p-per-share offer for the company last week, may be prepared to offer more to fend off any suitors waiting in the wings.