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Market report - Wednesday Update: Shares in electrical retailer DSG International slumped to a record low today, with prospects for shareholders still looking far from bright.
More than 23 million shares changed hands as the price of Europe's second-biggest electrical retailer, which includes PC World and Currys, dropped 2.75p to 13.25p, making it the biggest loser among second-line stocks. The shares started the year at 118¼p but the scope for a rally appears limited. Citigroup has slashed its full-year target price from 30p to 18p ahead of interim results next week that are unlikely to impress.
The shares have more than halved during the past week alone, unnerved by a profits warning from sector leader Best Buy. Seymour Pierce is a seller of DSG, saying October was a disastrous month for electrical retailers. It also emerged last week that credit insurer Atradius cut back its provision of insurance to suppliers of some retailers, including DSG.
Citigroup says DSG is vulnerable to the current recession as well as overcapacity and deflationary trends, which have crushed profits and margins during the past 10 years.
Meanwhile, Citigroup has raised Kingfisher, Kesa and Signet from sell to hold, claiming the scope for further share price weakness is limited. It has also dropped its target for Home Retail, down 10¾p at 160p, from 170p to 150p, Marks & Spencer, off 9½p at 201¾p, from 205p to 190p, Next, 3½p adrift at 936½p, from 950p to 900p, Sports Direct, 3¾p cheaper at 33¼p, from 50p to 30p, Kesa, 1p lower at 63¼p, from 115p to 65p, Kingfisher, 2.8p easier at 101.75p, from 110p to 100p and Signet, 80½p down at 530½p, from 1000p to 600p.
Investors continued to fret about the deepening recession. A heavy list of companies going ex-dividend also added to the market's burden. Their combined payout would have been the equivalent of a near-14-point drop in the FTSE 100 index which, in the event, was left nursing a loss of 100.6 at 4107.9. Those going ex-dividend included J Sainsbury, down 3p at 294p, cruise line operator Carnival, off 58p at 118p, and Cable & Wireless, 0.3p cheaper at 147.3p.
Despite the recent sharp drop in bank shares, they remain out of favour in some quarters of the Square Mile. HBOS rallied 8.5p to 71.5p, after touching a record low of 59p yesterday, with JPMorgan slashing its target for the UK's biggest mortgage provider from 180p to 60p while repeating its underweight rating. The US investment bank has dropped its target for Lloyds TSB, 0.1p dearer at 131.3p, from 180p to 150p with an underweight rating.
Lloyds TSB shareholders meet today to approve the bank's £4.3 billion takeover of HBOS. But there has been opposition to the move in some quarters, particularly in Scotland where some businessmen want to keep HBOS independent. Meanwhile, JPMorgan has also cut its target on HSBC, down 45p to 661p, from 720p to 675p and Royal Bank of Scotland, up 0.1p at 41.8p, from 120p to 50p. It has an underweight rating on both lenders.
Panmure Gordon has dropped its rating on HSBC from neutral to sell and slashed its target from 810p to 615p. This reflects a further deterioration in the global economic outlook. The bank has avoided going cap in hand to shareholders but, following cash calls by other banks, its near-9% tier one ratio is below the 10% European sector average. Further evidence of a slowdown in Asia is adding pressure to the group.
Barclays fell 10.9p to 138.6p after placing £500 million worth of newly issued shares with institutions.
Gulfsands Petroleum rose 8p to 147½p after confirming a new oil discovery in Syria. Oriel Securities reckons the find is significantly better than pre-drill estimates had indicated and could be worth between 50p and 60p a share to Gulfsands once the find is appraised.
