Market Report: Fears of profits warning dent Kingfisher

Michael Jivkov
Tuesday 06 September 2005 00:00 BST
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The worry seems to have been prompted by results from Wickes, a rival to Kingfisher, which showed that the decline in its sales had got worse.

This news prompted Numis Securities to slash its profits forecast for Kingfisher. For 2005, the broker expects to see profits at the DIY group come in at about £560m compared with £605m previously.

Numis said: "This downgrade assumes that B&Q's like-for-like sales continue to decline in the second half of the year, as there is still no sign of any recovery in the number of people moving house or spending on big-ticket projects."

Morgan Stanley also did not help Kingfisher, which closed 1.5p lower at 246p. The US broker warned its clients that City forecasts for 2006 profits at Europe's biggest home-improvements retailer are at least 15 per cent too high.

Kingfisher last issued a profits warningin April, and a month later it posted a 15 per cent slump in first-quarter profits. The company is suffering from the consumer slowdown in the UK and growing competition from the likes of Homebase and Wickes.

Recent retail industry data showed that B&Q had held its market share in 2004 at only 24.1 per cent, while Homebase had seen its market share grow to 10.4 per cent.

Elsewhere, BHP Billiton fell 19p to 822p while Rio Tinto lost 44p to 1,946p after Citigroup cut its recommendation on the duo to "hold" from "buy". The US broker fears there may be a slowdown in commodity prices in the near term, which will weigh on earnings growth at Rio and BHP. However, Citigroup is convinced that the long-term outlook for the mining industry remains bullish and so advises investors to exit the sector now but re-enter it on any substantial weakness in share prices.

Takeover rumours were once again in vogue. ScottishPower rose 21.5p to 546.5p on talk E.ON is putting the finishing touches to an offer for the utility, having hired the investment bank Lazard to advise it on a deal. After the close of business, the German group confirmed the rumours. Analysts calculate a tie-up between the two will generate significant cost savings.

Lloyds TSB, 13p higher at 478.5p, was also boosted by suggestions that its days as an independent entity are numbered. Dealers reckon a move on the UK bank is most likely to come from across the Atlantic, with Wells Fargo and Bank of America seen as prime contenders.

The online-gaming sector was another talking point. Empire Online rose 19p to 283p after Sportingbet, 3p better to 371p, confirmed it was in talks to acquire the group. Those piling into Empire yesterday are hoping PartyGaming will table a counter-offer for the group and possibly spark a bidding war. Investec Securities believes PartyGaming can afford to pay up to 360p a share for Empire. The broker said: "We estimate Empire provides up to 20 per cent of PartyGaming's poker customers. We would expect it to consider launching a rival offer for the company."

Gaming Corp, one of the sector's smaller players, rose 1p to 13.75p after Arbuthnot Securities urged investors to buy into the group, slapping a 21p price target on the stock. It expects Gaming's full-year results, due in November, to reveal pre-tax profits of £500,000. Given the strong trading at the group, this forecast could prove to be too conservative.

Autonomy dropped 12.5p to 344.25p as Citigroup told its clients to take profits from the stock's recent gains. Downgrading its rating to "hold" from "buy" Citigroup said: "We think it is time to take some profits and wait for further evidence of improving business fundamentals."

Most of the excitement surrounding Autonomy relates to its joint venture in China where it is in the process of setting up an internet portal in combination with Netcom, a local service provider. Citigroup believes investors should wait for more evidence that the venture is profitable before they buy any more Autonomy shares.

Among smaller companies, NetStore ticked 1.25p higher to 43.75p on talk the group's forthcoming results are likely to beat expectations. Gossips also talked of booming trading at Majestic Wine, 6p better at 279.5p.

Corvus Capital, the investment vehicle of the financier Andrew Regan, rose 1.25p to 14.75p amid whispers it is to sell its stake in the Hong Kong holding company, Tech Pacific, for about £4.5m. Corvus has been cashing in on a number of its investments of late. Word has it the AIM-listed group is building a war chest with which to fund a major acquisition.

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