Forecast bad for holiday firms

Published on Friday 20 November 2009 21:20

LONDON FTSE 100 CLOSE 5,251.4 -16.3

HOLIDAY heavyweights Thomas Cook and Thomson owner TUI Travel came under pressure yesterday after gloomy comments from analysts on prospects for the tour operators.

A research note from Morgan Stanley said: "Demand is still weak, cost pressures remain and capacity getting harder to cut."

That was enough, in an otherwise subdued session, to push shares in Thomas Cook and TUI Travel down by some 4 per cent, falling 9.3p to 209.2p and 10.2p to 245p respectively. Analysts at Morgan Stanley also expressed concerns over rising debt levels.

"There is a lag between unemployment and holiday demand as the annual holiday seems to be one of the last things to be cut back. Many operators will only suffer the full impact of the economic recession this season," the note said.

The wider market ended the week on a negative note, with the benchmark FTSE-100 index closing 16.3 points adrift at 5,251.4 following Thursday's fall of about 1.4 per cent – its biggest one-day retreat for three weeks. However, the index is still up 52 per cent from a March low.

The Dow Jones Industrial Average on Wall Street was also weak in the first few hours of trading, before the London close.

A further strengthening of the dollar was again putting pressure on US stocks, driving down foreign demand for commodities, which are often traded in dollars.

A strong dollar can also depress US exports which become more expensive as the greenback rises.

CMC Markets analyst Michael Hewson said: "The mood (in the UK] was not helped by a report from Nationwide building society saying that they expect house prices to fall back significantly in 2010, while reporting significantly falling profits.

"The Dow opened lower ... as the market winds down into the weekend, pulling back from the initial optimism emanating from the new highs posted earlier in the week.

"Sentiment appears to have started to shift slightly away from further gains, and towards a possible rebound in the dollar, as investors start to take money off the table, and become slightly more risk averse."

Among the banks this side of the Pond, Lloyds Banking Group was off 1.79p at 88.15p, Barclays lost 4.15p to 304.25p and Royal Bank of Scotland was down 0.01p at 35.995p.

House builder Barratt Developments in the FTSE 250 was also suffering amid the property price caution, down 6.9p or 5 per cent at 125.7p.

Its fellow property developers also suffered, with Persimmon off 13p at 436.5p, Taylor Wimpey down 1.46p at 37.46p and Bellway down 11.5p at 760p.

Also in the second tier, embattled transport firm National Express rose 8 per cent, or 25.9p, to 366.9p, after its largest shareholder – Spain's Cosmen family – upped its stake to just under 20 per cent with another 500,000 shares.

Buy-to-let lender Paragon was another top FTSE 250 riser thanks to positive broker comment. The stock moved 4 per cent or 5.1p higher to 147.1p after UBS upgraded the stock to "buy".

Back in the top flight, telecoms group Cable & Wireless gained 2.5p to 138.1p after JP Morgan said the company's demerger plans would keep management motivated to deliver.

Commodity stocks and miners gave back some of their earlier gains, although most held firm in positive territory, led by Lonmin up 8p at 1,693p and silver miner Fresnillo ahead by 4p to 875.5p.

Among the more defensive stocks was GlaxoSmithKline, up 1.1 per cent at 1,254p.