Citi downgrade proves wrong move for Rightmove

MARKET REPORT

The property website Rightmove lost more than 6 per cent yesterday after the bleak outlook for the housing market, and the increased rate of estate agency closures, caused Citigroup to cut its forecasts for the company.

Citi reduced its 2009 and 2010 pre-tax profit forecast for Rightmove by 25 per cent and 39 per cent respectively. The broker also revised its recommendation, to "hold" from "buy", and reduced its target price for the stock, to 345p from 550p.

"The speed of slowdown in the property market, the resulting closures across the estate agent industry and the standstill in new home development mean that both Rightmove's membership numbers and [advertising-revenue-per- agent] growth look set for a slowdown, thus eliminating profit growth from the group," the broker said. Citi predicted -13 per cent net agent membership growth in 2008 and - 17 per cent in 2009.

The assessment bore heavily on the stock, which was down 20p at 300p.

Elsewhere, Debenhams sunk by 9.28 per cent or 4.5p to 44p after Piper Jaffray reiterated its "sell" rating and 17p target price for the stock, and late rumours suggested the retailer group may breach its debt covenants.

"The fact that net debt remains close to 1bn and supplier credit at [more than] 260m, on reduced cash generation, leaves few options, in our view, but to raise additional capital from investors or banks, even after a cut in the final dividend," the broker said.

Uninspiring weekly sales figures from John Lewis also contributed to the stock's slide.

The FTSE 100 was 87.6 , or 1.5 per cent, lower at 5,620.8 as concern about financial stocks, both in London and New York, bore on investor sentiment. The FTSE 250 shed 85.5, or 0.9 per cent, to 9,361.1.

On the FTSE 100, a round of negative broker comment depressed HBOS, which edged closer to its 275p-per-share rights issue offer price, down 14.5p at 282.25p. Panmure Gordon, which maintains a "sell" rating on the stock, reduced its forecasts and target price, to 250p from 350p.

The broker said the expectation of "significantly higher impairment charges" and of further writedowns had driven it to cut its earnings-per-share forecasts to 25.2p from 38.1p for 2008 and to 24.1p from 47.5p for 2009.

Panmure added: "We realise that setting a share price target below the rights price of 275p is controversial - we stress that it is a reflection of our overall view on the UK banks and the outlook for earnings in very tough macro environments."

Deutsche Bank also weighed in. The broker reduced its target price for the stock to 415p from 450p and said the bank's balance sheet was "poorly positioned for weakening markets in the UK, Ireland and Australia".

Barclays was 7.5p weaker at 308.25p. The bank had begun the day positively after reports emerged of a possible capital injection from Sumitomo Mitsui Financial, one of Japan's largest financial groups. But it slipped into the red after rumours that Merrill Lynch, the American investment bank, was preparing to issue a profits warning sullied sentiment in the sector. As a result, beside Barclays and HBOS, Lloyds TSB was down 4.5p to 327.5p and Royal Bank of Scotland lost 5.5p to 219.25p.

In the oil and gas sector, Tullow Oil swung to first place on the leader board after the oil price rose again ahead of a meeting tomorrow among major producers and consumers in Jeddah, Saudi Arabia. Amec, the oil services group, also drew mileage from firmer prices and rose by 21p to 950.5p.

Among miners, Anglo American lost 60p to 3,459p after the Brazilian press reported that Vale had denied participating in takeover talks with a rival company. Anglo was mooted as a possible target, for earlier reports had indicated that the South American miner was raising cash to fund an acquisition.

Also on the FTSE 100, the security specialist G4S rose 3.75p to 210p after Morgan Stanley revised its rating on the stock to "over- weight" from "equal-weight". The broker also increased its target price for the stock to 240p from 225p.

On the FTSE 250, Barratt Developments changed course and rallied 9.5p to 87.75p after the trade publication Building magazine said the debt-laden housebuilder had reached a deal with its bankers, who have reportedly agreed to waive a clause that could have put the company in breach of its financial covenants.

The news relieved the wider sector, which has also been weighed down by debt concerns as house prices tumble, and Bellway rose 48p to 524p.

On AIM, Ithaca Energy surged 35.5p to 153.5p after Endeavour International Corporation confirmed an offer in which it proposes to acquire the company for a combination of cash and shares at an indicative price of $3.25 per Ithaca share.

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