Market Report: Liberty forecast to breach covenants

A "sell" note from Société Générale depressed sentiment around Liberty International, the blue-chip property group, which fell back as the market surged yesterday.

The broker said it now anticipates a 45 per cent "peak-to-trough" drop in property prices compared to 35 per cent before, implying a 37 per cent decline in like-for-like asset value for Liberty. The trough reported net asset value per share is now expected to drop by 40 per cent to 426p at the end of 2009, while the company's loan-to-value ratio is forecast to climb to 74 per cent, in breach of one of Liberty's financial covenants.

"This should prompt a need for fresh equity of £0.2bn, on top of our expected divestments to stay within the covenant boundaries," Société Générale said, moving the stock to "sell" with a 420p target price from "hold" with a 690p target price.

The assessment meant that Liberty, down 2.18 per cent, or 10.75p, at 482.75p, was one of only three stocks to close in the red on the Footsie.

The oil services specialist Wood Group was the weakest, losing 4.95 per cent, or 8.1p, at 155.7p ahead of the FTSE index review tomorrow – Wood is expected to drop down from the FTSE 100 to the FTSE 250. The transport group Stagecoach was down 3.77 per cent, or 4.5p, to 114.8p, after Cazenove reduced its estimates given the weak outlook for the company's rail franchises.

Overall, the FTSE 100 registered its fourth-biggest one-day rise, advancing to 4300.06, up 6.19 per cent, or 250.69 points, and the FTSE 250 jumped to 5948.77, up 4.63 per cent, or 263.24 points. Investor sentiment improved after the US president-elect Barack Obama unveiled plans for the biggest infrastructure investment programme in the United States since Dwight Eisenhower championed the creation of the interstate highway system more than half a century ago.

Buyers returned amid hopes that the initiative might stave off the worst of the economic storm engulfing the world's largest economy but some traders warned against reading too much into the day's movements, highlighting the low volumes being traded across the market.

On the FTSE 100, the heavily weighted commodities stocks made the most of the shift in sentiment. The sector was also boosted by some strength in the price of oil, which firmed up ahead of a meeting of the OPEC cartel next week. Among miners, Eurasian Natural Resources Corporation was the strongest, gaining 18.39 per cent, or 46.75p, to 301p. The stock closed at second place on the benchmark index. BHP Billiton, at third place, was up 15.63 per cent, or 152.52p, at 1128p while Anglo American, at fourth place, climbed to 1429p, up 15.61 per cent, or 193p.

Tullow Oil, the London-based exploration and production group, led the oil and gas issues, gaining 10.71 per cent, or 47.5p, to 491p. Deutsche Bank, which weighed in on the exploration and production sub-sector last night, said that with the "world class Jubilee field at the heart of its portfolio, and intense drilling activity underway", Tullow remained its key pick.

Elsewhere, insurance groups rose after the National Association of Insurance Commissioners in the US gave the nod to proposals aimed at lowering insurers' capital and reserve requirements. Prudential fared the best and claimed first place on the Footsie, up 23.2 per cent, or 67.5p, at 358.5p.

On the second tier, Carphone Warehouse traded lower after the co-founder David Ross resigned following his failure to declare that he had used a chunk of shareholding in the group as security for personal loans. Mr Ross made similar disclosures regarding his holding in Big Yellow, where he serves as a non-executive director, and National Express, which he chairs. The news prompted fears that Mr Ross might have to sell down his stakes in all three, thereby creating a stock overhang in each. As a result, Carphone was down 4.3 per cent, or 4p, at 89p, Big Yellow fell to 186.5p, down 12.13 per cent, or 25.75p, and National Express eased to 470.5p, down 1.67 per cent, or 8p. In other news, National Express was downgraded to "underperform" from "in-line" at Cazenove.

Imperial Energy was the weakest stock on the FTSE 250 after the Takeover Panel said that, after hearing arguments from India's ONGC Videsh, it had declined to extend the date by which ONGC needs to post the offer document in respect of its proposed acquisition of Imperial. The news sparked concern that ONGC was attempting to delay the takeover, sending the stock down 17.48 per cent, or 180p, to 850p despite assurances to the contrary from the Indian group. Sources close to Imperial also reiterated that the deal was on track.