Market update - 19 November

The FTSE 100 was down 74.49 points at 4134.06 while the FTSE 250 fell to 5810.13, down 115.85 points, at 12.00 pm.

Moving up

Mecom, David Montgomery’s European media group, was the strongest on the combined FTSE 350 index, gaining more than 38 per cent or 0.44p to 1.59p thanks to rumours that Axel Springer, the German publisher behind Die Welt and Bild, was preparing to make an offer.

On the FTSE 100, HBOS rebounded from recent weakness, advancing to 72.7p, up 15.56 per cent or 9.8p, ahead of a crucial Lloyds TSB shareholders meeting where investors will vote on the proposal to merge the two businesses. Lloyds was up 1.8p at 133p.

Moving down

Woolworths was down 32.55 per cent or 1.24p at 2.57p after the company confirmed that it was in preliminary discussions regarding a possible offer for its retail business.

KBC Peel Hunt, which weighed-in on the announcement this morning, said a deal was doubtful given the company’s debt laden balance sheet and pension funding requirements.

“We would be surprised to see Woolworths transform its fortunes in its current form; a smaller store base and range changes are likely necessary to our minds. For a potential buyer, after the high debt burden and pension funding requirement, which may stretch beyond the deficit, the 800 store base and £160+ rent bill remains a major stumbling block. Indeed we struggle to see a strong market for store disposals in the coming year,” the broker said, adding:

“A forced sale of the BBC joint venture stake would help pay down debt and cover the pension requirement, which may be a pre-cursor for any deal to succeed although with only one buyer, a full valuation would also be unlikely. Consequently, the changes of a successful deal being concluded remains quite doubtful to us, although equally, the group’s finance providers will be facing a bleak year ahead in 2009.”

Marks & Spencer was on the back foot following reports that it was resorting to holding a one day 20 per cent off sale later this week in a bid to attract consumers. Responding to the news, Freddie George at Seymour Pierce said that the move was “a clear sign that sales are well behind budget in the lead up to Christmas.”

“We are downgrading our 2009 pre-tax profit forecasts from £650m to £630m taking earnings per share down from 29.5p to 28.6p predominantly because we believe that management are too optimistic on the gross margins for general merchandising,” Mr George said, adding:

“We will also be reviewing our forecasts for all the apparel retailers in light of the recent steep decline in sales over the last fortnight. Following half term, it appears, consumers have significantly reined back their spending… They are delaying their Christmas shopping and hoping to benefit from the escalation of discount activity. Christmas 2008 has the feel of being the worst retailing Christmas for many years…”