Market Report: Wolseley plunges as brokers turn bearish

Broker downgrades bore down on Wolseley, the FTSE 100-listed building materials manufacturer, which sunk to an intra-day low of 531.5p yesterday.

Former house broker ABN Amro was among the bears, revising its recommendation to "sell" from "hold", noting that the company's "balance sheet and strategy require additional equity". ABN said that, at a time when it should be "positioning itself to implement its strategy of consolidating weaker competitors at attractive prices", Wolseley is constrained by the level of debt relative to earnings before interest, tax, depreciation and amortisation.

"We see the group's debt and covenant position as well as the lack of balance sheet firepower as fundamental negatives for Wolseley investors," ABN said. It added: "In our view, the first factor undermines potential return on equity, given the demands debt providers may make in the future, and the second factor prevents Wolseley's management from doing what it does best – driving synergies and growing the business."

Goldman Sachs, whose analysts also revised their recommendation, to "sell" from "neutral", was downbeat too: "As construction markets in both the US and Europe weaken, we expect Wolseley's earnings to continue to decline."

Goldman added: "We believe that over the course of calendar 2008 Wolseley will see declines in underlying profitability across every division."

Wolseley shares closed down 37p, or 6.3 per cent, at 550p.

Overall, a slump in the dollar and a fresh indicator of weakness in the US economy conspired to depress the FTSE 100, which lost 84 points, or 1.45 per cent, to close at 5,692.4.

Earlier in the day, the US Commerce Department said retail sales fell by 0.6 per cent in February, worse than market expectations of a decline of around 0.2 per cent. The FTSE 250 was also depressed, shedding 187.9 points, or 1.88 per cent, to 9,801.5.

Predictably, economic concerns weighed on house builders. Taylor Wimpey, which is slated to leave the FTSE 100 after being marked out for demotion in yesterday's quarterly review, lost 6.6p, or 3.88 per cent, to 163.4p.

Other fallers in the sector included Barratt Developments, which lost 21p to 392.25p, Persimmon, which shed 26p to 682p, and Bellway, which fell 21.5p to 760p.

Speculators helped Xstrata, which was among the few major mining stocks that remained buoyant. Whispers about an approach from Vale, which according to news from Brazil remains firmly on track, helped the company gain 68p to 3,921p. Kazakhmys, on the other hand, was down 35p to 1,745p after saying that it had not received a formal approach from its Kazakh peer ENRC, which had its promotion to the FTSE 100 confirmed after the market closed on Wednesday.

Elsewhere, hurt by weak sentiment, Anglo American was down 43p to 3,130p, while Antofagasta lost 6p to 754p. BHP Billiton was down 30p to 1,534p and Rio Tinto was down 35p to 5,407p, while Vedanta Resources was up 2p to 2,228p.

The consumer goods giant Unilever climbed 51p or 3.19 per cent, to 1,651p, claiming first place on the FTSE 100 leader board, after investors were heartened by a positive outlook from the Swiss rival Nestlé.

On the FTSE 250, the energy supplier Drax climbed 7p to 519p despite some concern from Morgan Stanley, which said that the closing of a tax loophole which allowed the company to save £22m a year by allowing it to deduct interest on a complex bond arrangement could "reduce our fair value by a significant 7 per cent if it cannot be mitigated".

The reinsurance and risk intermediary Benfield lost 29p or 11.16 per cent, to 230.75p. Panmure Gordon, which maintained its "sell" recommendation and 195p target price for the company's stock, said it reported "disappointing 2007 results with trading profit at £69.3m (-7.5 per cent)".

Panmure Gordon added: "Worse still is the profit warning for 2008 that says 2008 trading profit will be 'marginally' below 2007 (same as the Jan 2008 profit warning in respect of 2007 compared to 2006)."

On AIM, River Diamonds, the UK-based mining company which operates diamond exploration and prospecting projects in Brazil and Sierra Leone, returned to the market following the publication of documents regarding its previously announced acquisition of the remaining 80 per cent stake in Viso Gero International. After the completion of the acquisition, River Diamonds will own 100 per cent of the Vatukoula gold mine in Fiji. The company's shares rose 0.35p, or 7.95 per cent, to 4.75p.

The Dublin and London-listed Horizon Technology also had a good day, seeing its shares soar by 35.75p, or 107.5 per cent, to 69p after saying that it had been approached regarding a possible €1.18-per-share offer for the company.