Market Report: Retail sector hit by pre-Christmas discounts

Home Retail Group, the owner of the Homebase home improvement chain, slumped to the bottom of the Footsie last night as the retail sector turned lower amid growing concern about the impact of the flood of discounts on the high street.

Analysts at Singer Capital Markets said that the margin performance this year "could well be the worst on record" given research that 82 per cent of the 100 largest retailers were discounting before Christmas.

There was also concern about a drop-off in demand in January, after the current spate of offers runs out.

"We continue to believe that a reversion to normal discretionary times will leave retailers' sales back at very depressed levels again," Singer said, highlighting recent comments from Begbies Traynor, the insolvency specialists, that 10 to 15 national chains may fail before mid-January.

Nick Bubb, retail analyst at Pali International, also weighed in, warning: "If you thought the current level of discounting on the high street is unprecedented and that the rising number of retailing bankruptcies is unparalleled, then just you wait until January".

The grim prognoses depressed sentiment across the sector. Home Retail – which began trading on the FSTE 100 after the changes in the recent index review were implemented – was the hardest hit, falling to 204p, down 13.01 per cent or 30.5p.

B&Q-owner Kingfisher was down 5.09 per cent or 7.1p at 132.3p while Marks & Spencer retreated to 220.75p, down 2.21 per cent or 5p.

"M&S should survive the downturn, but investors have to appreciate that we have not yet got to the bottom of the alarming earnings and dividend decline it will suffer over the next two years...," Mr Bubb said, reiterating his "sell" rating for the stock.

Overall, with only one and half trading days to go before Christmas, volumes remained low and the FTSE 100 was down 37.77 points at 4,249.16.

The mid-cap FTSE 250 index – considered more representative of the domestic economic situation – was down 53.6 points at 6,231.5.

Bargain hunters drove the insurance sector, which dominated the FTSE 100 leader board with Friends Provident at first place, up 5.58 per cent or 4.3p at 81.3p, and Old Mutual, at second place, advancing to 52.9p, up 5.17 per cent or 2.6p.

Cairn Energy climbed to sixth place on the Footsie, up 4.33 per cent or 80p to 1928p, after its Indian unit announced an oil and gas discovery near an existing field in the Indian state of Rajasthan.

On the second tier, Citigroup reduced its target price for Cattles, down 31.75 per cent or 5p at 10.75p, to 18p from 36p, arguing that the company's bank debt maturing in 2009 represented the "biggest hurdle to 'normal operations'".

Analyst Haley Tam added that it was likely that the Financial Services Authority, the UK market regulator, "will not progress the [company's application for a banking licence] until refinancing terms on some or all of the group's £500m debt maturing in July have been agreed".

"We believe the scene is set for further increases in arrears and loan losses, and uncertainty on the funding and banking licence front," she said.

Elsewhere, Citi downgraded engineering group IMI, down 11.95 per cent or 35.25p at 259.75p, to "hold" from "buy" in a new sector review.

The broker said that, "at the earliest", it does not expect earnings forecasts for UK engineers to touch bottom before the second half of 2009,adding: "While valuation is attractive, history suggests that a sustained rally is not likely to be achieved before earnings trough."

Punch Taverns was down 6.97 per cent or 4.25p at 56.75p following reports that Global Pub Company, the 425 leased and tenanted pubs group owned by Robert Tchenguiz's R20 investment vehicle, was about to enter talks debt talks with lenders and bondholders owing to fears that it may breach its banking covenants. Cazenove said the read-across was for other leased/tenanted pub companies was negative "as it suggests that Globe's trading has failed to stabilise despite weak comparators in [2008]".

On the upside, Lonmin has a strong start to trading on the FTSE 250.

The platinum miner, which was kicked out of the FTSE 100 in the recent index review, surged to 880.5p, up 11.24 per cent or 89p, as investors moved to capitalise on recent losses.

Among smaller companies, Pure Wafer, the Swansea-based silicon wafer reclaim services provider, jumped to 6.5p, up 30 per cent or 1.5p, after confirming receipt of preliminary bid approach.

The approach overshadowed news of £800,000 in pre-tax losses in the company's preliminary results.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
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

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
Fifa corruption: Strip Qatar of the World Cup? Not likely

Strip Qatar of the World Cup? Not likely

But if a real smoking gun is found, that might change things, says Tom Peck
Twenty two years later Jurassic Park series faces questions over accuracy of the fictional dinosaurs in it

Tyrannosaurus wrecked?

Twenty two years on, Jurassic Park faces questions over accuracy
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
Genes greatly influence when and how many babies a woman will have, study finds

Mother’s genes play key role in decision to start a family

Study's findings suggest that human fertility is still evolving
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Rafa Benitez Real Madrid unveiling: New manager full of emotion at Bernabeu homecoming

Benitez full of emotion at Bernabeu homecoming

There were tears in the former Liverpool manager’s eyes as he was unveiled as Real Madrid coach. But the Spaniard knows he must make tough decisions if he is to succeed
England can win the Ashes – and Elvis Presley will present the urn

England can win the Ashes – and Elvis will present the urn

In their last five Test, they have lost two and drawn two and defeated an India side last summer who thought that turning up was competing, says Stephen Brenkley
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)