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Monday, 4 August - 4pm update
Shares in Britain's biggest pubs operator, Punch Taverns, rallied a further 36¼p to 293¾p amid mounting speculation that management may be close to calling time on its status as a publicly quoted company.
The fall in the share price of Punch and other pub companies has been so dramatic that they are starting to appeal to private-equity companies on the lookout for a bargain.
Word is CVC Capital Partners is hoping to take advantage of the 70% collapse in Punch's share price during the past year to launch a bid. Punch and its 7600-strong pubs chain is now valued at just £700 million.
Like all pub companies, Punch has suffered a drop in sales, hit by the smoking ban last year, cheap booze competition from the supermarkets and the consumer downturn. The credit crunch has also prevented the group from taking advantage of the tax incentives of converting its property portfolio into a real estate investment trust.
The speculation surrounding Punch also spurred on rivals, such as JD Wetherspoon, 12½p better at 231½p, and Mitchells & Butlers, up 36¼p at 293¾p.
Shares generally reversed early gains after interim numbers from HSBC, down 10p at 827p, failed to impress everyone. The FTSE 100 index fell 18.6 to 5336.1. Citigroup has added to investors' woes by warning the US economic slowdown will hit real economic activity, not just financial markets, and the worst is yet to come. Wall Street extended Friday's losses in early trading this afternoon with the Dow losing 93.3 to 11,233.0.
Lloyds TSB was also in retreat, losing 4½p at 295½p, with the shares due to go ex their 11p dividend on Wednesday. On Friday, chief executive Eric Daniels bought 100,000 shares at 296¾p following last week's interim results which contained further big write-offs. The price has slumped from 571½p since the start of the year.
Miners came under pressure after a further softening of commodity prices such as copper and platinum. Leading the way down was Eurasian Natural Resources, off 57p at 999p, accompanied by Kazakhmys, 115p to 1308p, Vedanta Resources, 134p to 1777p, and Anglo American, 140p to 2635p.
Goldman Sachs has cut its price target on Rentokil Initial, ½p firmer at 70p, from 106p to 68p and repeated its neutral rating following the group's “substantial” profit warning on 25 July. The new management team knew Rentokil was operationally challenged when it joined in March, but it is now clear the troubles run deeper than envisaged.
Rising fuel costs and a weaker economy are compounding the problems and Goldman now expects the improvements will take up to three years. It has cut its 2008 earnings forecast by 27%, and 2009 estimate by 34%, given the limited clarity on management's strategy and recent share price fall.
Credit Suisse has downgraded Ryanair, 15 cents cheaper at €2.22, from neutral to underperform and cut rival easyJet, down 12½p at 318p, from outperform to neutral following their recent profit warnings. It has become increasingly clear that the consumer downturn is likely to be prolonged.
The broker added that it is now forecasting full-year losses at earnings a share level for easyJet for September 2009, and Ryanair for March 2009. Credit Suisse said this reflects its assumption of lower average fares this winter.
Ryanair's target price has been cut from €2.2 to €2.10 due to a higher net debt estimate, and easyJet's from 425p to 350p, due to a more conservative valuation of its future aircraft orders.
Helical Bar rose 7½p to 315¼p on takeover hopes. Weekend reports claimed the commercial property outfit has been talking to a Norwegian sovereign wealth fund. Cazenove thinks it more likely Helical is looking for a partner to help exploit opportunities following the property-market collapse. It rates the shares outperform.
