Market Report: Morgan Stanley adds to retailers' VAT problems

Retailers reacted with dismay to the VAT increase announced by the Chancellor's in Tuesday's emergency Budget. They felt further pain on the market yesterday as Morgan Stanley said investors should head for the exits.

The broker's analyst, Graham Secker, said that because the tax was going up to 20 per cent, "our preferred trade is to sell general retailers and buy food retailers, as consumers have less discretionary income going forward".

General retailers had outperformed food stores when VAT was slashed to 15 per cent, Mr Secker added. As Morgan Stanley introduced a swath of ratings cuts, Halfords Group was among the worst affected, with its shares falling 21p to 525p.

Yesterday on the top tier was, in the words of one trader, "all about BP". The creaking oil giant was in focus again as fears intensified about the size of the bills waiting for it as it tackles its oil spill in the Gulf of Mexico. Analysts at Nomura said in a note: "Perception of near-term credit risk is highly damaging for BP, likely leading to constraints around counterparty trading, the attractive roll of drawn commercial paper and the ability to dispose of assets at attractive prices."

BP's shares hit a 14-year low by mid-morning and, despite a slight rally, closed 20.6p lower at 304.6p. It dragged down the entire FTSE 100, which closed 53.7 points lower at 5,046.4, the fourth consecutive day of falls.

Miners also retreated amid fears about the global economic recovery. The worst hit was Kazakhmys, which lost 43p to close at 1,067p.

Beyond BP, one market participant said the banks were holding steady. "Really though, volumes have been terribly subdued." Standard Chartered was the standout performer in the sector, rising 31.5p to 1742p. "The banks trade like water at the moment," the trader said. "Their valuation is pretty lowly and they are a good way of making money if you get it right. You'll lose a lot if you get it wrong, though."

The rise of the banks was also supported by news that the Basel III capital requirements would not be as tough as was previously feared. The regulation requires financial institutions to increase the amount of money they keep to cover potential crises. The Basel committee is presenting its latest proposals in a paper to the G20 summit in Toronto this weekend.

The mobile phone company Vodafone added 1.15p to close at 144.05p following a note from Morten Singleton, of Collins Stewart, who said that while the stock was not far off its fair value, current and pending newsflow "should see the share price ride beyond fair value levels". He was driven to raise the stock to a "trading buy" by news about data pricing and net neutrality, and duly upped its target price to 160p.

Late in the day on the second tier, shares in the housing maintenance contractor Connaught plummeted after it issued a profits warning 20 minutes before the close. The shares still plunged by a third, closing 105.2p lower at 215p after it said it was hit by government spending cuts and contract deferrals.

The chip designer Imagination Technologies stumbled after brokers gave it a collective working over. Jeffries and Panmure Gordon downgraded the stock from "buy" to "hold", while Seymour Pierce went one further and cut its rating to "sell". Seymour's Ian Robertson said: "We may be lacking a distinct catalyst to share price underperformance but the value of the graphics is more than priced in, and there is no real evidence of any other value."

It was all "lights, camera, action" for Cineworld Group. The only UK-listed cinema chain won the contract to run the cinema at London's O2 arena from its rival Vue. Cineworld signed a 25-year deal with the owner of the venue, Anschutz Entertainment Group, to operate the 11-screen multiplex.

Steve Wiener, the chief executive of Cineworld, was delighted by the win, saying the former Millennium Dome was a "landmark destination". The shares rose 3p to 200p at the news.

The share price of the car rental agency Avis Europe careered off the road. The stock gave up 17.9 per cent and closed at 28.5p after the company said it hoped raise £151m from a rights issue. Avis said it had turned to investors for cash – at a heavy 56.8 per cent discount to Thursday's closing price – in an attempt to bolster its balance sheet and give it "sufficient financial flexibility" to meet investment needs and provide for a loan maturing next year.

The Belgian car distributor D'leteren, which owns 59 per cent of Avis, fully backs the move, and the latter has also agreed a refinancing deal with its banks. One analyst said: "The appetite for small caps is weak; they are seen as highly risky at the moment. The market believes that lots of the companies will need to raise cash over the next year, and many will struggle to pull that off."

Devro enjoyed a rise in fortunes after a pre-close trading update. The company, which makes sausage skins (although it refers to itself as a "manufacturer of collagen products") said sales, pricing, volume growth and manufacturing efficiency had driven a "stronger than anticipated finish to the first half". On a weekend that is likely to see a spike in demand for sausages, Devro's shares rose 0.75p to 190.5p.

FTSE 100 Risers

Randgold Resources 6,480p (up 80p, 1.25 per cent)

One of the few mining stocks to rise as the price of gold soared yesterday.

British American Tobacco 2,129p (up 11p, 0.52 per cent)

As the markets fell further, investors looked towards classic defensives for safety.

Shire 1,416p (up 3p, 0.21 per cent)

Pharmaceutical company rises after approval of treatment for Gaucher disease is recommended.

FTSE 100 Fallers

Filtrona 213.6p (up 4p, 1.9 per cent)

Cigarette filter maker ends volatile week on the rise, as investors return following previous day's losses.

Dana Petroleum 1177p (up 11p, 0.94 per cent)

Stock makes slight gains after disappointing news of a key well the day before had sent it tumbling.

Cranswick 844p (up 6p, 0.72 per cent)

Bargain hunters pile in as stock had dropped to month lows with prospect of big barbeque weekend.

FTSE 250 Riser

Eurasian Natural Resources Corporation 930.5p (down 36.5p, 3.7 per cent)

Among hardest hit miners, as fears increase over global recovery.

Home Retail Group 225.9p (down 16p, 2.93 per cent)

Morgan Stanley note on general retailers drags stock lower.

Bunzl 689.5p (down 12p, 1.71 per cent)

Company's stock suffers fourth consecutive decline, following results earlier in the week.

FTSE 250 Fallers

Game Group 69.15p (down 3.95p, 5.4 per cent)

Video game retailer suffers as broker Goldman Sachs reduces price target.

ITV 53.5p (down 1.8p, 3.25 per cent)

Morgan Stanley reduces public service broadcaster's rating from "overweight" to "equal-weight".

nGo-Ahead Group 1167p (down 33p, 2.75 per cent)

Transport company suffers price target cut from Morgan Stanley analysts.

Suggested Topics
Voices
voicesSiobhan Norton on why she eventually changed her mind
Life and Style
fashion Designs are part of feminist art project by a British student
News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
i100
PROMOTED VIDEO
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
Arts and Entertainment
Residents of Derby Road in Southampton oppose filming of Channel 4 documentary Immigration Street in their community
tv
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
News
i100
Extras
indybest
Sport
Scottish singer Susan Boyle will perform at the Commonwealth Games opening ceremony in Glasgow
commonwealth games
News
Lane Del Rey performing on the Pyramid Stage at Glastonbury 2014
people... but none of them helped me get a record deal, insists Lana Del Rey
Arts and Entertainment
Dwayne 'The Rock' Johnson stars in Hercules
filmReview: The Rock is a muscular Davy Crockett in this preposterous film, says Geoffrey Macnab
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

PMO Analyst - London - Banking - £350 - £400

£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn