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Shares in London fall after Wall Street reversal

There was a major reversal in New York yesterday, with an early rise running into waves of selling and this looks as though it may be a short term top on the Dow Jones index. Shares in London had been fairly strong in recent sessions, but this morning there was a heavy markdown, not helped by some mixed corporate results, and by mid-morning the FTSE 10 index was down around 60 points.

The big news from the pub sector came from Punch Taverns, which decided not to pay a final dividend to conserve cash. Its plans to convert to a REIT have also been shelved on cost grounds, and it said that the main priority for the use of cash was to support the repayment of the group's convertible bonds. Like-for like sales from its tenanted arm fell 3.4% over the year with a fall of 3.3% at the managed estate. Unsurprisingly, Enterprise Inns and Mitchells & Butlers were also very weak, and it is not too late to go short here.

The big fall in crude oil yesterday saw further pressure on the sector majors, but the beneficiaries of lower oil costs have had another good session, with British Airways and Easyjet again looking good. Another riser is Cable & Wireless after Prudential agreed to take responsibility for just over £1bn of its pension assets and 5,000 scheme members.

In the retailing sector, figures from DSG International were predictably poor, as like-for-like sales dropped 7% in the 16 weeks ended 23rd August 2008. Total group sales rose 4% in sterling terms and fell 2% in local currency. It said that the trading environment remained challenging across Europe with gross margins across the group down 0.75% year on year, and we have to agree with the cautious outlook for the economy and the shares.
 

Head of Research at Blue Index, specialists in trading

03/09/2008

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