Originally printed 25/10/2003
Dixons came under pressure yesterday as the electrical goods retailer found itself haunted by the spectre of rising interest rates on one side and the target of bearish remarks from analysts on the other.
News that retail sales grew 0.6% in September, compared with forecasts of 0.4%, left economists predicting a tightening of rates.
“Today’s data have increased the probability of a rate hike when the monetary policy committee meets in November,” said Simon Rubinsohn, chief economist at Gerrard. “We would now put the odds at 70-30 in favour.”
Such a move, according to retail analysts, could affect Dixons disproportionately, because consumers would hold off buying big ticket white goods.
But the stock also suffered as a series of analyst notes hit the market following a visit to two of Dixons’ stores and a meeting with the company’s management to talk about strategy.
Seymour Pierce analyst Rhys Williams was generally positive about Dixons’ strategy – which he described in a note as “pretty well developed and thought out”.
He added: “However the question is: when will these benefits come through?”
Members of Morgan Stanley’s retailing team added that they believe the stock is currently fairly valued but there are a number of developments that could lead them to underperform, such as a significant market downturn and the impact of an adverse ruling on extended warranties. The Competition Commission report into extended warranties is with trade and industry secretary Patricia Hewitt.
Dixons’ early losses and continued pressure on Shell, down 3.5p at 372p following the oil major’s poor figures, pushed the FTSE 100 index lower in early trading. But as the day wore on some bargain hunters appeared to scoop up the cheap shares.
As a result of the late support the index closed down just 1.2 points at 4239.0 despite falls of more than 100 points on Wall Street amid concerns about corporate earnings. Overall volume on the FTSE 100 was a weak 2bn shares.
Extract from The Guardian