Market report: TSB hit by bearish broker note

Indeed, although TSB “might appear a simple play on the highly profitable UK retail banking market,” there are obstacles ahead that have been created “primarily through the manner in which it has been initially constituted”.

The wider market was also under pressure. The FTSE 100 started the session on the back foot amid growing concern about the escalating violence in Iraq. Worse than expected US gross domestic product data released during afternoon trade gave investors another reason to sell, and the benchmark index finished the day down 53.45 points at 6,733.62, a 0.8pc drop that took the FTSE 100 to its lowest close since late April.

The second-tier FTSE 250 put in a similarly weak performance and slid 93.26 to 15,453.95.

Bid target Shire, the biggest blue-chip riser with an increase of 113p to £45.17, gained ground in early trading after a US court ruled in its favour in a patent case involving its best-selling hyperactivity drug, Vyvanse.

The shares kicked higher at noon when American suitor AbbVie attempted to win over investors by laying out its reasoning for approaching Shire. Traders noted that Richard Gonzalez, AbbVie’s chief executive, did not rule out turning hostile in its pursuit of Shire, on a conference call held with analysts.

Burberry was another that bucked the broader market weakness and edged 9p higher to £14.65, supported by an upbeat research note on the luxury goods retailer from Barclays.

“Recent meetings with senior management of Burberry have highlighted that the transition [between chief executives] from Angela Ahrendts to Christopher Bailey has progressed smoothly with little change in strategy,” the Barclays analysts said. “Our meetings included about 10 members of the senior leadership group during the showroom and creative design department tour, where there was a strong rapport.”

However, the same broker was less enthusiastic about fellow retailer Marks & Spencer and sent the shares 7.6 lower to 426.2p by telling clients that “consistent clothing market share losses undermine management’s turnaround plan”.

Those investors expecting M&S to buy back shares or boost its dividend are likely to be disappointed, as “the company spends too much on capex… and has suffered too many negative profit revisions recently to afford increased cash returns”.

Hopes of a takeover by private equity are also misplaced, the analysts argued, because “at the current share price and above, the economics of a potential [leveraged buy-out] would not work.”

Staying with the fallers, it was Meggitt, the engineering company, that recorded the single heaviest loss in the blue-chip index, after analysts at JP Morgan Cazenove cut their recommendation on the shares to “underweight”, to account for sterling’s recent strength against the dollar and expected weakness at the company’s defence business.

The shares responded with a drop of 17 to 508½p.

Traders said that Bunzl, too, was hampered by currency worries in the wake of a trading update on Wednesday, in which the distribution company said its forthcoming half-year results would be “negatively affected” by foreign exchange movements. Bunzl, off 30p at £16, will join a long list of British companies that have said they have been hurt by the strong pound.

Meanwhile, copper miner Antofagasta lost 16½ to 762½p, a slide that dealers attributed to a downgrade to “sell” at UBS. The broker said it had turned even more cautious on copper prices and saw the Chinese property market as “the greatest threat to commodity markets” both this year and next.

Carnival fell 49p to £22.27 as investors gave further consideration to the cruise operator’s second-quarter results, which were released a day earlier and included a disappointing forecast for third-quarter earnings.

Lower down the scale, a profit warning from Synectics, in which the surveillance technology group cautioned that half-year and annual results would be “significantly below market expectations”, saw the shares plunge 97, or 22.8pc, to 329p.

But Quindell, the controversial insurance outsourcer that is closely followed by retail investors, rose 7½ to 209p, helped by its founder buying yet more shares in the company. Chairman Rob Terry yesterday purchased 16,667 shares at 190p a piece, taking his total holding to almost 45.7m shares, the equivalent of a 10.9pc stake.

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