Market report: Friday close

By SARAH MARKS FOR MAILONLINE
Updated: 12:06 EST, 4 July 2008

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Marks & Spencer was looking increasingly friendless after joint house broker Citigroup downgraded the retailer to sell and slashed its target price to 205p - in other words less than it was worth when Sir Stuart Rose rode to the rescue in 2004.

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Citi analyst Richard Edwards said weakening consumer demand was unlikely to recover next year and cut his earnings forecasts by 23% to 33p next year and to 26p in 2010. He argues that the M&S share price 'is unlikely to benefit from a premium, recovery valuation multiple and property assets are also unlikely to provide any material share price traction'.

The downgrade was enough to wipe a further 9p off the share price to 227p.

Sainsbury's independence could once more be under attack as it emerged that the Gulf state of Qatar has increased its stake in the supermarket group to 26% or 454.5m shares.

The government of Qatar abandoned its high-profile, £10.4bn takeover proposal for Sainsbury's in November, and was subsequently banned from making a further move on the group for six months. However, since the handcuffs came off two months ago it has been taking advantage of Sainsbury's weakened share price to quietly strengthen its position and talk of a renewed bid approach is growing.

The supermarket chain's property portfolio is reckoned to be worth around £8.6bn while its market cap is less than £5bn.

Sainsbury's was today down ¼p at 279¾p with traders reporting investors and hedge funds buying into both a takeover story and Sainsbury's generally undervalued defensive strength in a consumer downturn. As one analyst pointed out, people still need to eat and all the main grocers were for once high up on the leader board. Wm Morrison was 7p higher at 254½p with Tesco 17.7p better at 359&frac2;p.

Lloyds TSB, down 6¾p to 299¼p, was spared the punishment meted out to the rest of the financial sector as expectations rose that it will prove the healthiest UK High Street bank when it unveils half-year results at the end of the month. Cazenove is fostering this view, telling clients it expects strong interim results on 30 July and more focus on Lloyds' defensive qualities - ie lack of exposure to risky assets.

However, it was not all good news for Lloyds. Société Générale cuts its target for the bank to 305p from 400p and warned that its much-vaunted premium has the potential to recede.

By contrast, Barclays was 13p off at 279p, Alliance & Leicester 36¼p down at 255½p, and HBOS gave up 7¾p to 271½p. B&B led the mid-cap fallers down 11p to 50p, a fall of 14%.

With Wall Street closed for Independence-Day celebrations, the FTSE 100 gave up all of yesterday's gains, falling 63.8 points to 5412.8.

Next rose 19½p to 873p as it emerged that finance director David Keen splashed out £37,000 on shares last night. Keen bought 4,500 shares at 829p taking his stake to 151,437.

Friends Provident tumbled 7p to 94½p following reports that Swiss Life has lost its appetite for its Lombard insurance business.

Swiss Life's withdrawal leaves just two possible private-equity buyers - Hellman & Friedman and CVC Capital Partners - from an initial field of 15 who entered the race to buy the highend division.

Drowning your sorrows in the traditional manner may not prove financially rewarding either. Diageo dropped 23p to 879½p and SABMiller slid 42p to 1073p as analysts at UBS downgraded the Guinness owner to neutral from buy and put a short-term buy note out on the South African brewer.

Stock market information

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MONDAY'S AGENDA

Hong Kong's Hang Seng closed up 201.7 at 21444.5, but in Tokyo, rising production costs hit confidence and the Nikkei was down 27.5 points at 13237.9.

• As investment banks continue to slash staff, white-collar headhunter Michael Page issues a second-quarter trading update. Analysts expect a fairly gloomy statement, and fear earnings forecasts may be cut, after chief executive Steve Ingham admitted in April that the credit crunch has hit hiring in the banking sector. Despite strong growth in the Far East, UBS is advising clients to sell shares in the company, warning that it looks particularly exposed to an economic slowdown.

• No-frills carrier easyJet reports traffic figures for June. With consumer confidence plummeting, analysts fear people will cut back on flying, particularly as airlines are forced to increase ticket prices because of the soaring cost of oil. EasyJet said that it carried 16% more passengers last month, against the previous year after adding new routes but the load factor - the percentage of seats filled - fell 0.4% to 83.2%.