Market Report: Man 'flying on one engine' and losing height

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The Independent Online

The London-based hedge fund group Man closed at its lowest level since 2003 last night after Citigroup, concerned about the company's growing dependence on its flagship AHL fund, switched its stance on the stock to "hold".

Citigroup also slashed its target price for Man, to 265p from 570p, arguing that, with AHL, the group was "flying on one engine", which implied increased earnings volatility.

"Not only that, but this engine is already operating at optimum pace, generating +11.5 per cent returns in October," the broker said.

"We see the outlook for fund flows and AUM [assets under management] growth in the near term as largely dependent on positive performance by AHL. Performance is notoriously volatile, putting the group in a vulnerable position, in our view."

Citi's circular followed a similar assessment from Morgan Stanley, which reduced its target price for the stock to 260p from 455p the day before and helped to depress Man to 190p, down 23.39 per cent, or 58p. At the close, Man was the weakest stock on the combined FTSE 350 index.

Overall, the spectre of a sharp, serious recession came back to haunt the London market, pushing the FTSE 100 down 64.67 points to 4,182.02 and the FTSE 250 to 6,251.18, down 153.33 points. Investors fled after the Bank of England published its November inflation report, highlighting the risk of yet tougher economic conditions, while the Office for National Statistics revealed that unemployment had climbed to an 11-year high with more than 1.8 million people out of work. Traders said that, given the mounting economic gloom, the market might test October's lows in the coming sessions. On the FTSE 100, falling metals prices and production cuts at Eurasian Natural Resources Corporation, down 6.89 per cent or 19.5p at 263.5p, bore on the mining sector. Kazakhmys was the hardest hit, losing 10 per cent, or 30.5p, to 274p, while Vedanta Resources fell to 623p, down 8.78 per cent or 60p. Anglo American retreated to 1,279p, down 8.38 per cent or 117p, and Xstrata was down 7.06 per cent, or 76p, at 1,000p.

Oil prices continued to slide as the dollar strengthened and commodities traders feared that supply would outstrip demand as the global economic crisis gathers pace, depressing Cairn Energy, which fell to 1,504p, down 6.35 per cent, or 102p, and BG, which was down 5.42 per cent, or 49p, at 855p.

In the banking sector, Dresdner Kleinwort said that it expects Standard Chartered, down 7.5 per cent or 64.5p at 795.5p, to move to boost its capital base by between £2bn and £3bn in the coming weeks.

Barclays fell to 168.2p, down more than 6 per cent or 10.8p, amid signs of growing shareholder opposition to its planned fundraising exercise.

On the upside, British American Tobacco gained 21p to 1,681p after Goldman Sachs moved the stock to "buy", arguing that, in a slowing consumer environment, the tobacco group's emerging market exposure, strong balance sheet and attractive dividend yield made for a good investment opportunity.

Among mid-caps, Punch Taverns traded lower, down 10.71 per cent, or 16.25p, at 135.5p, after the ratings agency Moody's placed a number of classes of notes issues by Spirit, one of the pub group's three securitisation vehicles, on review for a possible downgrade. The wider sector was also weak amid concern about the impact of the recession and recent calls for the ban on so-called "happy hours", when pubs offer discounted drinks to lure customers.

Enterprise Inns was the weakest, down 23.18 per cent, or 25.5p, at 84.5p, while Mitchells & Butlers lost 5.98 per cent, or 10.25p, to 161.25p and JD Wetherspoon fell to 272p, down 2.68 per cent, or 7.5p. Parts of the housing sector, including Taylor Wimpey, down 7.35 per cent, or 0.79p, at 9.96p, and Persimmon, down 7.8 per cent or 21.5p at 254p, also fell back after recessionary fears overshadowed predictions of another large interest rate cut next month.

Elsewhere, UBS upgraded Meggitt to "buy", arguing that long- and medium-term investors should capitalise on recent weakness. "Given that we expect 2010 to mark the trough in Meggitt's earnings cycle, we believe [current multiples] are undemanding and offer the long-term investors a good buying opportunity," the broker said, aiding the stock to 150p, up 9.69 per cent, or 13.25p.

Among smaller companies, property group Minerva was on the back foot, down 18.89 per cent, or 2.22p, at 9.53p, after Merrill Lynch switched its stance on the stock to "underperform".

"Given the uncertainty surrounding its development pipeline, no dividend yield and negative recurring income we prefer to err on the side of caution," the broker said, slashing its target price for the stock to 9p from 40p.