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Market Update: FTSE 100 down 54.7 points

Nikhil Kumar
Tuesday 27 January 2009 13:59 GMT
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The FTSE 100 eased to 4154.31, down 54.7 points, while the FTSE 250 lost 30.92 points to 6225.3 at around noon.

Wolseley, the construction materials group that last night posted a worse than feared trading update, continued to shed value, losing 6.47 per cent or 13p to 188p as analysts highlighted the need for fresh funds in light of the group’s growing debt burden.

Exane BNP Paribas said it now expects Wolseley to breach its covenants by year end, telling clients that a rights issue “could be announced soon”.

“The short term uncertainty could create some volatility. We recommend that investors stand ready to participate in a capital increase if and when it is announced. Wolseley would then become the best US play in our sector and would offer a safe balance sheet,” the broker said, adding:

“Post a capital increase, our cum-rights target price could be revised to around 380p, yielding more than 90 per cent upside.”

Royal Bank of Scotland also weighed-in, saying the group’s reluctance to move quickly on the rights issue had left its shares “exposed to further selling pressure”.

“With an equity issue of at least £750m required, shorting pressure looks [like] a significant risk for Wolseley shareholders given the need for equity and the reducing appetite amongst investors. We believe Wolseley faces a serious risk of further de-rating. We maintain [a] sell [rating] and reduce [our] target price to 167p [from 224p].”

Moving up…

The banking sector continued to recover ground, with Royal Bank of Scotland adding 10.34 per cent or 1.5p to 16p and Lloyds Banking Group advancing to 68.6p, up 5.21 per cent or 3.6p.

Barclays, which sparked the recovery after senior management published an open letter to shareholders yesterday, was also firm, gaining 0.3p to 89p.

Elsewhere, Experian was 2.36 per cent or 9.5p ahead at 411.5p after UBS switched its stance on the stock to “buy” from “neutral”.

“Despite the banking sector malaise, tentative signs that recent initiatives to shore up lending are having some effect can be seen in the US and UK,” the broker said,

“We see credit market unblocking as a necessary precursor to a broader macro recovery and think Experian should be an early beneficiary compared to other sector cyclicals.”

On the second tier, pubs group Enterprise Inns surged to 42.75p, up 17.12 per cent or 6.25p amid speculation that the government may bow to industry calls and freeze beer duty in a bid to revive flagging sales.

Moving down…

Commercial property issues were on the back foot, again, after Goldman Sachs advised investors to stay cautious, saying:

“There is press speculation that UK REITS [real estate investment trusts] are considering rights issues. If a combination of disposals and/or renegotiations of debt covenant terms prove insufficient or existing shareholders show a willingness to participate, [they would become the likely option in our view]. Upside and downside risks exist [and] on balance [they appear] more to the downside in our view,” the broker said, issuing a series of downgrades.

British Land, which was added to Goldman’s “conviction sell” list, lost 3.71 per cent or 16.5p to 428.5p while Brixton, whose target price was reduced to 103p from 153p, fell to 92.5p, down 3.9 per cent or 3.75p.

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