ITV bucks trend as FTSEcontinues its decline

MAXIMUS · #1 05-07-2008, 08:32 PM

ITV bucks trend as FTSEcontinues its decline London markets hit their lowest level in more than 2½ years yesterday, but ITV bucked the trend as takeover talk provided a distraction from trading worries.

The broadcaster's shares rose 3.7 per cent to 42.6p after a report that Mediaset, the Milan-based media group owned by Silvio Berlusconi, the Italian prime minister was looking at expanding overseas.

The report sparked hopes that ITV could be a break-up candidate between Mediaset and Endemol, the production company in which Mediaset has a one-third stake.

Traders were sceptical. While a 50 per cent slump in ITV shares this year is thought to have attracted the attention of both trade and private equity, weak advertising markets remain the key concern.

ABN Amro yesterday downgraded ITV to "sell" from "hold" and cut earnings forecasts to 25 per cent below consensus levels.

Analyst Justin Diddams expects ITV to cut its year-end dividend to 2p, down from 3.2p in 2007.

"Potential revenue declines against ITV's relatively fixed cost base and low operating margins would have a devastating impact on earnings," he said. "Our hard-landing scenario suggests ITV could face potential debt covenant issues, further cuts to the dividend and additional pension deficit contributions." The FTSE 100 index fell 63.8 points to 5,412.8, its lowest close since November 2005.

Bradford & Bingley dealt the main blow to confidence after TPG pulled its offer of a £179m capital infusion, forcing the ailing bank's largest investors into launching a rescue.

B&B slid 18 per cent to 50p, crashing through its emergency rights issue price of 55p. Bruce Packard, an analyst at Pali, set a price target of zero on the stock.

Goldman Sachs repeated a "conviction sell" rating on Alliance & Leicester , down 12.4 per cent to 255½p, in a sector note that weighed against the wider European banking sector. Lenders could have to raise a further €60bn, or withhold one year of dividends, to meet de facto capital standards, Goldman said.

It also estimated that a turn in the European credit cycle equal to that seen in the early 1990s would raise the total to more than €90bn.

HBOS was down 2.8 per cent to 271½p. Barclays lost 4.5 per cent to 279p and Royal Bank of Scotland was down 3.2 per cent to 206¼p.

Friends Provident led the insurers lower on fears that buyers are dwindling for Lombard, its European wealth management business. Swiss Life, the only trade buyer in the auction, has reportedly pulled out of talks, leaving private equity firms CVC and Friedman. Friends lost 6.9 per cent to 94½p.

Marks and Spencer re-mained out of favour, down 3.8 per cent at 227p, as joint house broker Citigroup moved to "sell" from "buy".

But selected retailers rallied as weak sales numbers from John Lewis encouraged theories about shoppers trading down.

Tesco rose 5.2 per cent to 359.2p, having been added to Merrill Lynch's "buy" list on Thursday. Wm Morrison rose 2.8 per cent to 254½p.

Next took on 2.3 per cent to 873p after finance director David Keens and non-executive director Jonathan Dawson, formerly of Lazard, added to their holdings.

Sandford C Bernstein analyst Luca Solca said Next presented a short-term trading opportunity in the wake of the M&S warning. Management's "down-to-earth cash focus" may mean profit can surprise even if sales deteriorate at the rate expected, he said.

Rio Tinto climbed 2.6 per cent to £56 on talk that BHP Billiton was preparing to improve its hostile takeover offer by about 15 per cent.

Wolseley lost 4.4 per cent to 313p after joint house broker Deutsche Bank cut earnings forecasts but added that asset disposals and a dividend cut may be enough to avoid a rights issue.

One radical option would be for the Wolseley to close Stock, its lossmaking US lumber business, at a cost of about £400m, Deutsche said.

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