Afternoon:
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Shares in the UK's two biggest package holiday operators were among the heaviest blue-chip fallers today after one broker decided that their outlook was far from sunny.
Thomas Cook fell 6¾p to 211¾p, while TUI lost 5p at 250¼p after Morgan Stanley dropped its rating on both companies. It has cut Cook from equalweight to underweight and reduced its target from 270p to 230p. It has downgraded TUI from overweight to equalweight and lowered its target from 320p to 290p. It says the downgrades are to reflect a weaker operating environment and more expensive debt refinancing.
“Thomas Cook appears to us to have the most forecast risk as it has above-average margins and, we believe, needs to refinance its debts quicker than the market believes, potentially including new equity,” the broker says.
TUI is its preferred choice because it offers a more favourable risk-reward balance. It also offers scope for margin recovery and specialist holiday expansion.
Shares generally were suffering their fourth consecutive day of losses after reversing early gains following the expiry of the November series of futures and options. So the FTSE 100 index was left nursing a fall of 26.89 at 5240.81, having briefly touched 5309.39 earlier in the session.
Yesterday, the benchmark index suffered its biggest one-day loss in three weeks.
Dealers say there are signs a growing number of institutions have started to close down in the run-up to Christmas. The fear of failure remains high. Shares have come up 55% from their low point in March and many fund managers may have already chosen to cash in their chips and take a back seat until the New Year.
Miners came off the boil despite a bright start for commodity prices. Gold traded touched $1144.57 an ounce before relapsing to $1136.50. Other commodities lost their way after the dollar strengthened considerably amid fears that the Ukraine is about to default on its debt obligations.
Platinum producer Lonmin fell 13p to 1671p, after touching 1733p, while Randgold lost 22p at 4864p, Eurasian Natural Resources shaded 15p to 853½p. Rio Tinto was beating a retreat, losing 72½p at 3111½p, after Credit Suisse cut its rating from neutral to underperform.
Bank shares were flat with investors tempted to take profits. Barclays retreated 8p to 300½p, Royal Bank of Scotland 0.71p to 35.3p, Lloyds Banking Group 1.1p to 88.8p and HSBC 3½p to 729¼p.
Shares of grocer Wm Morrison remained friendless as they dipped 5¼p to 275¾p following news this week that chief executive Marc Bolland is off to Marks & Spencer, 1½p off at 379¼p. Morrisons started the week at 293p.
BG Group ran into profit-taking, the shares falling 6½p to 1124½p. Deutsche Bank has raised its target price for the shares from 1060p to 1120p following yesterday's update of flow rates at its Iracema oil well off Brazil, which it operates jointly with Petrobras. BP fell 5½p to 576p, Royal Dutch Shell 16½p at 1773½p and Cairn 14p at 2902p.
Housebuilders were sent reeling by news of the drop in profits at Nationwide and its gloomy outlook for house prices in the UK next year. The mortgage provider is warning that prices will fall between 5% and 10% in 2010 which runs contrary to recent predictions that the housing market has started to recover. Barratt Developments fell 6p to 126¼p, Taylor Wimpey 1¾p to 37¼p, Persimmon 16½p to 433p and Redrow 4½p to 140p.
Panmure Gordon has hiked its target on Mears from 260p to 330p and repeated its buy rating. That will be warmly received by chairman and Oldham's best-known son Bob Holt. He was disappointed this year when shares in the social housing and care group missed out on promotion to the FTSE 250 index by just 1p. Today the shares traded ½p firmer at 278¼p.
Enterprise Inns ran into profit-taking, losing 5p at 113p following news of a big drop in profits earlier this week. KBC Peel Hunt was not impressed and has repeated its sell rating and 85p target. The broker found it encouraging that the trading decline had not accelerated, and that the management appeared on course to refinance bank debt by September 2010.
“We expect total debt to remain above eight times earnings for the next two years, a level unattractive for most investors”, the broker says.
