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Market report - afternoon update
Punch Taverns got another smack in the face today, courtesy of a feisty City analyst who claimed that a fair value for the stock was zero, and that the company is heading for "zombie" status.
Charles Winston, leisure analyst at Redburn Partners, can claim responsibility for another plunge in the shares of Britain's biggest pubs operator, which at one stage today were down by more than a fifth.
Punch's balance sheet is bloated by debts of £4.5 billion, a heavy burden for a company rapidly running out of equity and today valued at less than £150 million.
"We now believe that equity investors will probably never see another penny out of Punch in the form of dividends, buybacks etc," said Winston.
Punch hit back, claiming there were "serious, factual errors" in Winston's report, which went into detail on the status of various securitised debts and claimed a high risk of default.
Winston backtracked a little, admitting he'd misunderstood some of the terms for the repayment of the debt. But he stuck to his guns on the wider issue, insisting that whatever cash Punch throws off in the next few years will have to go towards servicing debt, which means shareholders should get out before last orders is called, in his view. The shares, which were changing hands for more than 700p just a year ago, today lost 1½p to 60p.
Shares were generally in positive territory. An absence of fresh redemptions among hedge funds and the reluctance of institutional investors to open fresh positions ahead of the Christmas break have slowed turnover to a trickle. The FTSE 100 index rose 3.53 to 4370.81.
Housebuilders aren't the only ones at risk of breaking their banking covenants as soaring debts are exacerbated by falling share prices.
UBS warns there are also significant risks on covenants in the equipment-rental sector, which relies heavily on activity in the building and construction industries.
It singles out Speedy Hire, which sank 5¾p to a record low of 122¼p, and Northgate, which also plumbed new depths, down 1¾p to 86½p.
"They have the most pressing concerns on covenants. We have removed any assumptions on dividend payments going forward," UBS says.
The broker reckons Ashtead, 2½p stronger at 39¾p, is more attractive, given its secure balance sheet. But it has cut its price target on Ashtead from 45p to 40p and on Northgate from 120p to 100p. Both companies continue to be rated at neutral. It has lowered Speedy Hire's target from 140p to 115p, and rates the shares a sell.
Supermarkets were marked lower as Tesco upped the ante in the grocery price war, launching a half-price sale on 1000 items from tomorrow until Christmas. Wm Morrison fell 3p to 276p, Tesco was off 5.8p at 328½ and J Sainsbury dived 5¼p to 298p.
Goldman Sachs added to Morrisons' woes, advising clients to dump the stock amid warnings that the chain will find the going increasingly tough in the coming months.
JJB Sports was another retailer under fire from brokers. Its shares slid 0.7p to 9.8p as Dresdner Kleinwort slashed its price target for the sportswear chain from 28p to just 5p. Analysts say it is perfectly possible JJB could avoid following Woolworths on to the High Street scrap heap, but given the lack of earnings visibility provided in yesterday's trading statement, they have nothing that could substantiate this fact for investors.
Tullow Oil gained 81½p to 577p - making it the top flight's biggest winner - after announcing new oil finds in Ghana and Uganda. The UK-based explorer also found a fan in Citigroup, whose analysts raised its price target from 500p to 530p.
Others in the sector ticked better as the price of crude shot up after the International Energy Agency said demand will rise next year. Cairn Energy surged 174p to 1818p while BP climbed 17¾p to 530½p.
