Market update - 23 October

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The Independent Online

The FTSE 100 was down 100.44 points at 3940.45 and the FTSE 250 was down 165.62 points at 6067 at 11.58 am this morning.

Construction group Wolseley was among the weakest on the FTSE 100, down 7.47 per cent or 22.75p at 282p, after announcing the restructuring of Stock Building Supply, its American building materials business. In response, Seymour Pierce moved the stock to “hold” from “buy”, noting that the move “is unlikely to be well-received because it falls between the two options that would have eliminated losses at Stock, [i.e.] an outright sale or closure”.

“Stock lost £123m in the year to July 2008 and even after the closure of a further 86 branches out of 295, exiting 6 states and job reductions of 3000 out of 11, 790, it is expected to lose a further £120m this year before the exceptional restructuring costs of $225m and the $100m impairment charge,” the broker said, adding:

“Admittedly the cash costs of the restructuring are only around $20m which will be offset by immediate savings in working capital. This is a key factor, because, although this restructuring is not quite what the market expected, the main drag on Wolseley at the moment is the potential breach to banking covenants. We still do not believe it will.”



Moving up



BSkyB was firm, up 0.5p at 357p, despite a bearish assessment from Collins Stewart, which said that that the company “faces greater threats to its business model than ever before”.

“The UK looks likely to be heading for recession, possibly long and possibly deep. BSkyB is at times portrayed as a defensive stock, a good stock to ride out a recession with… a monthly subscription costs less that a family meal out or trip to the cinema, so if a family economising, they’ll cut those costs, and then home to watch Sky,” the broker said,

“There may be some truth in this, but we believe that churn will rise (rising unemployment alone will see to that), gross new additions will slow, putting the breaks on subscriber growth.”



Moving down



Insurance group Aviva continued to trade lower, down 5.45 per cent or 14.5p at 251.5p, on concern about its capital position. The fall came despite words of support from Panmure Gordon, which said that the shares are “factoring in too much negativity”.



“On a fundamental basis we are at a loss to rationalise the extent of Aviva’s recent share price fall,” the broker said, adding:

“We strongly suspect that the share price is being driven by technical issues such as hedge fund sell offs. If the reason for Aviva’s dramatic share price falls is due to concerns over a possible capital raising, we firmly believe that one will not be contemplated in the short term.”



In the wider market, mining stocks remained weak and Antofagasta was down 12.13 per cent or 35p at 253.5p. Kazakhmys was down 27.25p at 230.25p and Fresnillo was down 17.5p at 119.1p.

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