Market Report: Tesco slips despite bullish note from broker

When the stock market decides it is moving in one direction, it can be very difficult for any stock to resist. Even an exceptionally bullish analyst's note from Deutsche Bank yesterday, on Tesco, was not enough to stop its shares falling, although a 4.5p drop to 316.5p was a better performance than the wider market.

Deutsche Bank believes now is "the best opportunity to buy the shares in the last four years", with Tesco's international business significantly undervalued by the market. The broker expects the international retailing business to grow at 20 per cent per year.

The Deutsche Bank analyst James Collins upgraded his price target on Tesco shares from 370p to 400p, noting the company still has "great growth potential" through its non-UK business, which he believes the market is valuing at only four to seven times earnings. Even so, with the rest of the market increasingly looking like a bloodbath, Tesco bulls were powerless to prevent the stock from finishing in the red.

Another retail giant, Marks & Spencer, outperformed the wider market but still fell 8p to 567p. It is due to report full-year figures today, with some traders expecting forecast-busting numbers showing a rise in pre-tax profits of up to 30 per cent. Even so, many traders feel that, in current market conditions, the results will have to be spectacular if more selling is avoided.

Despite the weak market trend, there was enthusiastic support for the mobile telecoms stock Vodafone, although the shares were unable to end the session in the black. Traders are convinced a deal will be struck to sell the company's 45 per cent stake in Verizon Wireless to its joint venture partner, Verizon. The US telecoms group is known to be keen to buy the stake, with Vodafone thought to be thrashing out a price. Even so, the shares lost 3.5p to close at 118p. Elsewhere in telecoms, BT Group beat the market by closing 1p firmer at 224.5p on the back of last week's well-received results.

Weak commodity stocks led to another trading day as gloomy as the weekend weather, with the FTSE 100 quickly moving into triple-digit losses, closing at 5,532.7 - a fall of 124.7 and the lowest close of the year.

Leading a shortlist of FTSE 100 gainers was Alliance & Leicester, after the French banking group Crédit Agricole confirmed the long-circulated rumour that it is preparing a bid for the UK's third-largest mortgage lender. An initial burst of enthusiasm saw A&L shares soar in early trade, peaking at 1,263p, a 148p rise, before profit-takers moved in. A&L finished at 1,143p, a rise of 28p, comfortably the best-performer in the index.

The oil exploration and production stock, Soco International, was among the leading second-line fallers, 157p lower at 1,115p. Despite bullish broker reports and upbeat drilling newsflow from its Vietnamese operations, the shares have lost 31 per cent from the high of 1,610p hit a couple of weeks ago. Petrofac was not far behind, dropping 32p to close at 259.75p.

Also in the red was the entire housebuilding sector. After a big bounce-back in Friday's session, when Thursday's losses were regained, it was back to selling pressure as investors' concerns over a rising interest rate environment pegged the sector back. George Wimpey led the way, 30.5p lower at 427.5p, followed by McCarthy & Stone, 32p worse at 727.5p and the FTSE 100 representative, Persimmon, down 68p to 1,132p. Some traders believe the US housing market is due for a substantial correction that could spark a similar reaction in the UK. The mortgage broker Kensington was also out of favour on house market worries, falling 125p to 930p.

Watford's win over Leeds United in the play-off final gave the owners Watford Leisure a boost, 5.5p better at 38p. As previously mentioned in this column, investors seem to believe getting into the Premier League through the back door of a play-off win is a better guide to survival than by winning automatic promotion. Shareholders of Sheffield United must be wishing their club had not won automatic promotion - shares in Yorkshire's only representative in the top flight are still languishing at 16.5p, unchanged, more than 30 per cent lower than the 23.75p they were trading at when the club clinched promotion.

The network service provider Netservices reported a first-half pre-tax loss and said converting new orders was slowing, and its shares closed23p lower at 53.5p as investors deserted the stock.

The tightly held China Real Estate Opportunities continued to display volatility, with the shares again showing big falls on very light volume. Market-makers blamed the small free float, with the directors thought to be locked into 90 per cent of the shares. As a result, they fell 137.5p to 762.5p on volume of only 1,619 shares.