Market report: Monday close

WITH less than four weeks to Christmas, there are few signs of cheer on the High Street and brokers are again warning this could be a difficult year for retailers.

That certainly seems to be the view of Lehman Brothers, which warns of a disappointing outcome and tells investors to shop wisely.

Among those likely to suffer most during the run-up to festivities is Dixons, 1½p lower at 147¾p, which Lehman has downgraded from equal weight to underweight while cutting its 12-month target from 170p to 135p.

It has also reduced its estimate of earnings per share to reflect pressure on margins, cutting those for 2004-05 from 13.5p to 13.4p and for the year after from 14.9p to 14p.

Lehman reckons cost reductions are not sufficient to offset the effect of a housing slowdown on the white-goods market and the relaunch of extended warranties. It has repeated its overweight stance on Boots, 1½p lower at 632p, but slashed its target from 805p to 750p claiming the attraction of its 'defensive mix will become increasingly apparent'.

Marks & Spencer, 2¼p easier at 333p, is raised from underweight to equalweight simply because disappointment in the group's performance is already factored into its second-half estimates.

But Lehman warns: 'There is still £25m of risk to pre-tax profit estimates that M&S may have to invest in prices to match its peers'.

Lehman is forecasting a 4% drop in like-for-like sales and an extra £40m of markdowns, although the key to the group's performance is management change and trading over the next couple of years. It is also bearish on prospects for Kingfisher, ¼p dearer at 289¾p, but is more upbeat about Argos and Homebase retailer GUS, 6p higher at 879½p, and Next Group, 3p off at 1619p. It expects both to increase market share.

Share prices generally made a strong start, lifting the FTSE 100 index 8.30 points at 4749.80. That was backed by a rally in the dollar and a 75-point premium for the Dow on the futures market.

Manchester United fell 4¾p to 276¼p following weekend reports claiming American businessman Malcolm Glazer was ready to sell his near-30% stake after failing to obtain the finance or the backing for a bid of more than 300p a share for the Premiership side.

Deutsche Bank has established a portfolio of 10 companies that are strong on corporate governance. They are: Centrica, up ½p at 247¼p, Scottish & Southern, 3p better at 821p, ICI, 1p off at 239p, MFI, unchanged at 117½p, Northern Foods, up ½p 168¼p, Pennon, 4p weaker at 886p, Signet, ¼p better at 104¾p, Smith & Nephew, ½p better at 539½p, Taylor Woodrow, 2p down at 230½p, and BHP Billiton, up 1½p at 617½p.

But Deutsche is less charitable towards Rexam, off 4½p at 456¾p, which it has downgraded from buy to hold following the recent strong performance of shares in the world's biggest maker of drinks cans. Deutsche has retained its 474p target.

Merrill Lynch has raised its target on Vodafone, up ¼p at 143¼p, from 145p to 155p following recent strong interim profits and repeated its buy rating.

Construction and housebuilding outfit Kier, down 20p to 707½p, warned at its AGM that visitor levels and reservations for new homes are lower than a year ago. It has secured 68% of its target for house sales five months into the new financial year by some new contracts.