Market report: Consumer firms hit by spending cutbacks

Wednesday 27 August - 4pm update

The ill-effects of the credit squeeze are starting be felt by consumer-related companies as investors fret about the shrinking amounts of cash in our pockets and purses.

Sales are already under pressure that will soon manifest itself in profit margins, which could lead to cuts in dividend payouts.

The biggest blue-chip casualty today was Enterprise Inns, down 14¾p at 306¾p — within a whisker of its record low of 299½p. The pubs chain started the year at 649p but, with the average price of a pint in the capital now topping £3, it is little wonder that stayathome drinkers are buying cheap booze from the supermarkets.

The falling pound is giving package-holiday operators such as Thomas Cook, down 4p at 213p, a big headache. It means holidaymakers are paying more for their trips to the sun and have less to spend when they get there. TUI Travel shed 4p at 203¼p.

Costa Coffee and Brewers Fayre operator Whitbread lost 15p at 1118p. Brokers say consumers are switching to takeaways and meals at home to conserve cash, and skipping the odd cup of coffee.

We have already seen that fashion retailers such as Next, down 31p at 1012p, and Marks & Spencer, off 5½p at 245p, are feeling the squeeze, with shoppers switching to discount retailers or just spending less in the shops.

Shares generally traded within a narrow range in thin conditions. Prices rallied this afternoon, despite a rise in oil prices. The FTSE 100 index rose 40.9 to 5511.6. Wall Street was cheered this afternoon by an unexpected rise in durable goods orders last month. But celebrations were tinged by those higher oil prices, which led to selling of the Dow future. The Dow rallied from opening falls to sport a rise of 5.5 at 11,418.4.

Satellite broadcaster BSkyB was showing stock-market bears a clean pair of heels after Goldman Sachs chose to add the shares to its conviction buy list. They rose 51/4p to 455¼p, making them the best performers in the top 100 companies.

Despite adding the shares to its buy list, Goldman has slashed its target price from 770p to 593p, presumably because of the bleak outlook for advertising revenues.

The move by Goldman follows its latest review of the media sector, which also saw it upgrade ITV, in which BSkyB still has an 18% stake, from sell to neutral while repeating its 48p target. The price dipped 0.3p to 42.1p.

BSkyB obtained its stake last year to thwart a merger with Sir Richard Branson's Virgin Media. It paid more than 120p a share, and is nursing a large loss on the deal. It has been told by the regulator to reduce the stake to 7%.