Market Report: Disappointing sales growth drives Dixons lower

Dixons found itself under heavy selling pressure throughout yesterday's session as bearish comments from Credit Suisse First Boston combined with a profits warning from the consumer electronics specialist Alba to leave shares in the retailer 3.75p weaker at 155.5p.

Dixons found itself under heavy selling pressure throughout yesterday's session as bearish comments from Credit Suisse First Boston combined with a profits warning from the consumer electronics specialist Alba to leave shares in the retailer 3.75p weaker at 155.5p.

In the morning, CSFB weighed on Dixons as the broker downgraded its stance on the group to "under perform" from "neutral" and slashed its profits forecast for 2005 by 6 per cent. It blamed growing evidence of a deceleration in UK consumer spending for the move. CSFB said: "With a run of disappointing weekly sales growth figures from John Lewis Partnership, including a succession of negative weeks for its electricals department, and continued weakness of like-for-like sales growth reported by the British Retail Consortium, we believe there are risks to Dixons' forecasts."

After lunch, sentiment towards the stock took a further blow as Alba warned that it would miss its full-year profits targets. The company, down 75p to 510p, complained that slowing sales of its products and discounting by retailers had negatively impacted its profit margins. Investec Securities took this news as confirming that Dixons is facing a hefty slowdown in sales and urged its clients to reduce their holdings in the company.

Meanwhile, changes to the FTSE 100 were a big talking point in most dealing rooms. The rejig of the blue-chip index, which finished down 16.3 points at 5,010.9, will be officially confirmed today, but the changes are based on yesterday's closing prices. These indicate that International Power, off 1p to 182p, will be promoted to the FTSE 100 in place of Cairn Energy, down 21p at 1,204p.

In the FTSE 250, British Energy, 5p higher at 277p, and Savills, 2.5p weaker at 627.5p, gained promotion to the index of second liners at the expense of Alba and DX Services.

Elsewhere, Exel soared 20p to 874.5p as rumours of a bid for the logistics group from Deutsche Post returned. Last week Exel reported a 15 per cent jump in profits but its chief executive, John Allan, refused to comment on the persistent takeover speculation which surrounds the company. Also supporting Exel yesterday was a bullish note from Credit Suisse First Boston. Applauding the group's recent results, the Swiss broker set a new price of 900p on the stock.

Aviva dropped 15p to 662.5p in advance of today's full-year results from the insurer. Analysts expect Aviva to deliver a 15 per cent rise in headline profits to £2.2bn. According to stock market gossips, the insurer will also announce plans to buy RAC. Shares in the autos group soared 138.5p to 880.5p yesterday after it admitted to have received a takeover approach.

Dealers reported heavy shorting of Kingfisher, down 2.75p to 292p, as severalhedge funds warned that the DIY group's results - due on the 17 March - may disappoint. Last month's trading statement from the group was certainly far from impressive. It reported a sales rise of just 0.6 per cent in the fourth quarter as tough competition and a slowdown in consumer spending took the wind out of its sails.

Compass rose 4p to 254p after Mike Bailey, the catering group's chief executive, was heard to have made an upbeat speech to an industry conference. It emerged from the conference that Compass, along with other cantering industry players, will be campaigning hard to the Government for an extra 20p on the price of school meals. This would provide a healthy boost to the sector's profits margins. Some market professionals also reported vague rumours that a private equity house is running the slide rule over Compass with a view to launching an offer for the company.

Semiconductor stocks were undermined by a profits warning from US the industry giant Texas Instruments. Wolfson Microelectronics dropped 1p to 172.5p, ARM Holdings gave up 0.75p to 112.5p and Arc International ticked 0.25p lower to 42.25p after the Texas Instrument told Wall Street that its first-quarter earnings will not live up to hopes because of weakening demand for chips used in televisions and projectors.

EMI added 6.75p to 242p with a little help from Lehman Brothers. The US broker raised its rating on the music group all the way to "overweight" from "underweight" and tipped EMI to soon return to a period of rising profits as digital sales growth starts to motor.

Lower down the pecking order, Biofuels dropped 10p to 245p on rumours that the green fuel specialist is poised to unveil a rights issue. According to the talk, details of the fund raising could come as early as today. Analysts reckon the company will most probably use the cash to finance its expansion into Europe.