Market Report: Next best thing as fashion grows for clothes retailers

  • @greentoby

Optimism that conditions might be easing for clothing retailers persuaded investors to stock up on Next yesterday, despite claims the level of service on the high street is waning.

Lord Wolfson's chain may have warned last month that sales and profits growth this year would be modest, but Deutsche Bank believes that 2012 could be "materially better" for the sector than the previous 12 months.

Pointing out that retailers were forced to hike prices last year thanks to a jump in the cost of making clothes, the broker's scribblers argued that this inflation pressure should ease, not least because of a recent sharp fall in the price of cotton.

They also said they believed the number of new stores opening in the UK would be smaller than ever, claiming they "expect less net space to be added in 2012 than in any other year on our records".

The analysts were most keen on the mid-market retailers, pointing out that the value chains' customers tended to be from demographics more affected by rising unemployment and inflation.

In response, Next ticked up 14p to 2,733p, although its move was tempered somewhat by Oriel Securities. It was rather less confident on the high street, saying that with weak sales growth forcing shops "to batten down the hatches" and cut staffing costs, "falling service levels have damaged retailers' ability to drive sales".

As a result, Oriel's analysts warned that "margins may drop as this balance is redressed", while adding that the recent relief bounce following a particularly tough Christmas "means the risk of disappointment is rising". They removed Next's "buy" rating while also downgrading their advice on Debenhams (down 0.5p to 69.5p) to "add".

A late slide meant the FTSE 100 finally moved out of the tight range it had been trading in all week, closing 43.08 points worse off at 5,852.39.

While investors were used to uncertainty in Greece, it was the news from the US which caused the greatest damage as disappointing consumer confidence figures knocked the market back.

The miners were hit hard by Chinese data showing imports dropping the most since 2009. Kazakh digger Kazakhmys dipped 53p to 1,124p while Anglo American was 113.5p worse off at 2,746.5p in the wake of mixed results from its De Beers diamond business.

Having been helped up by the revival of vague bid speculation earlier in the week, Shire continued its strong recent performance by ticking up 34p to 2,214p. The drugs maker, which released its full-year figures on Thursday, was boosted by Credit Suisse's claim that the Bank of England's £50bn cash injection would devalue sterling and therefore benefit most those companies with a high exposure to the US.

As well as Shire, the Swiss broker also highlighted National Grid. However, the utility was knocked back 7.5p to 6325p after JPMorgan cut its advice to "neutral" thanks to regulatory uncertainty.

Four weeks after the Costa Concordia tragedy, Investec's analysts decided to take a first look at the ship's owner, Carnival. Giving the cruise giant a "buy" recommendation, they said the accident would not put holidaymakers off cruises, although this did not stop the group creeping down 15p to 1,962p.

Down on the FTSE 250, Kenmare Resources continued its recent march higher, powering up 1.6p to 53.1p. Vague rumours were continuing to do the rounds that it could be a takeover target, while the Irish miner has now made more than 7 per cent over the last three sessions.

The insurer Phoenix avoided being one of the worst losers despite announcing that bid talks with CVC Capital Partners – which started in November – had fallen apart, as it fell just 8.5p to 561p.

Hopes that it could treble its earnings per share in four years meant that Imagination Technologies advanced 14.5p to 630.5p. Goldman Sachs made the prediction, citing the chip designer's opportunity in both the tablet and smartphone markets, while the broker also chose the company as one of its favourites in the technology sector.

Blue-chip rival Arm Holdings was also strong, climbing 6p to 567.75p, despite announcing that its director John Cornish had sold more than £1m-worth of shares just a day after getting the vast majority of them through a bonus and incentive plan.

While bid speculation was still swirling around Kurdistan-focused Gulf Keystone Petroleum, there were also vague rumours doing the rounds that the punters' favourite could soon unveil a decent oil find.

With it also being helped by the French giant Total saying it was examining "very closely" the possibility of investing in the autonomous Iraqi region, the explorer spurted up 40.25 to 382.75p, continuing a run in which its share price has doubled in little more than a month.

FTSE 100 Risers

Tate & Lyle 685p (up 12.5p, 1.86 per cent)

Having suffered a sharp drop on Thursday following its third-quarter update, the Splenda-maker manages to regain some of its losses after topping the blue-chip index.

InterContinental 1,397p (up 18p, 1.31 per cent)

Hotels group gets a boost from both Credit Suisse and Panmure Gordon raising their target prices ahead of its final results, which are set to be released next Tuesday.

FTSE 100 Fallers

Evraz 412p (down 16.8p, 3.92 per cent)

Roman Abramovich-backed steelmaker suffers a large slump once again, meaning it has now lost more than 10 per cent during a five-day losing streak.

ICAP 366.6p (down 14.8p, 3.88 per cent)

Interdealer broker is knocked back by Goldman Sachs' decision to cut its rating to "neutral", saying it prefers UK asset managers to market structure companies.

FTSE 250 Risers

Homeserve 251.8p (up 6.5p, 2.65 per cent)

Home repairs company stretches its recent rally to a second day, having dropped more than 17 per cent over the previous three trading sessions.

WS Atkins 749p (up 16.5p, 2.25 per cent)

Engineering firm given a boost by analysts from both Credit Suisse and Espirito Santo raising their target prices in the wake of its recent interim management statement.

FTSE 250 Fallers

Cable and Wireless Communications 36.33p (down 7.24p, 16.62 per cent)

Telecoms firm slumps after warning that its Panama business is not performing as expected, thanks partly to a jump in competition.

Ferrexpo 334p (down 19.7p, 5.57 per cent)

Ukranian iron ore producer retreats in the wake of the decision of Renaissance's analysts to downgrade their recommendation to "hold" from "buy".