Bearish broker comments depressed Woolworths, the troubled retail group, which missed out on yesterday's market rally. The stock fell to 1.34p, down 6.29 per cent or 0.09p, after Panmure Gordon set a 0p target price, arguing that "given deteriorating high-street conditions and Woolworths' obvious distress, there is now little or no chance of the equity retaining any value".
The broker said that it did not see a happy outcome even if Hilco, the restructuring firm that is in talks to acquire the company's high-street stores for £1, takes on the retail portfolio and assumes some of the group's debt burden. Assuming that the remainder of the group is left with £50-100m of debt, Panmure added, "The remaining businesses, which are collected under the heading of entertainment, wholesale and publishing are not stand alone ... So if Woolworths retail is in trouble, this has implications for the bit that Woolworths Plc hangs on to and its ability to service its debt."
In other news, the 10 per cent shareholder Ardeshir Naghshineh stepped up his opposition to the possible sale of the retail division. After a meeting with the group's lenders, he said that a sale to Hilco was not in the interests of shareholders or staff.
Overall, the FTSE 100 mounted a spectacular relief rally, gaining a record 9.84 per cent or 372 points to 4,152.96, after the US government stepped in to throw a lifeline to Citigroup, the banking giant, which saw its shares more than halve in value last week.
The markets were also pleased with President-elect Barack Obama's decision to select Timothy Geithner, the New York Federal Reserve chief who engineered the Bear Stearns rescue, to replace Hank Paulson as Treasury Secretary. Alistair Darling, the Chancellor of the Exchequer, provided an extra shot in the arm when he announced a £20bn fiscal stimulus package to aid the British economy.
"Citigroup was the main factor," said one trader. "Everything else played a part but that really gave people the confidence to bring the market back from last week's lows."
On the FTSE 100, investors moved in to capitalise on bargains, pushing mining stocks, including Anglo American, up 22.79 per cent or 258p at 1390p, Fresnillo, up 22.79 per cent or 24p at 129.3, and Antofagasta, up 21.42 per cent or 76p at 430.75p, to the top end of the Footsie.
Not everyone was convinced, however. Citigroup struck a note of caution, saying that the "ongoing (mostly unexpected) knock-on effects in economies from credit problems are a warning to metal analysts not to take a rapid turnaround for granted".
"Lately it seems each Monday one looks back on the economic data-flow of the previous week and concludes that 'it can't get worse'. Then it does," the broker said, adding that although the falling metals prices prompted a round of revisions to estimated earnings in October, "the subsequent bulk-commodity collapse is only now feeding into [earnings] downgrades".
The banking sector drew strength from news of the Citigroup rescue. Barclays, up 9.88 per cent or 13.3p at 146.5p, was among the strongest after shareholders approved its plans to raise cash from Middle Eastern investors. Blue-chip insurers were also relieved by the news with Prudential gaining 20.41 per cent or 50p to 295p and Old Mutual advancing to 52.1p, up 15.78 per cent or 7.1p. On the downside, Standard Chartered took the wooden spoon, falling 4.54 per cent or 34.5p to 725p, after unveiling plans to raise £1.78bn through a 30-for-91 rights issue priced at 390p per share.
In response, Panmure Gordon reduced its forecasts and moved the stock to "sell", citing the dilutive effect of the rights issue and the weak outlook for global economic growth. Cazenove, which also reduced its earnings estimates to reflect the issue, kept the stock at "neutral", arguing "investors will welcome the strong capital position at Standard Chartered". Credit Suisse also stuck to its "neutral" rating.
Elsewhere, the FTSE 250 gained 5.43 per cent or 298.09 points to 5788.55. Retail stocks rallied after the Chancellor confirmed plans to reduce VAT to 15 per cent until the beginning of 2010. Nick Bubb, retail analyst at brokers Pali International, warned that while the news might provide some short-term relief to the sector, the reversal of the measure "may be impossible to pass back on and could therefore prolong the eventual agony for the sector".
Nonetheless, in light of current depressed valuations, he moved Home Retail Group, up 12.54 per cent or 20.5p at 184, and Debenhams, up 8.6 per cent or 2p at 25.25p, to "neutral" from "sell".
JJB Sports soared, gaining 7.44 per cent or 2.25p to 32.5p, after confirming that it had received an approach for its Fitness Clubs business.