Building materials group Wolseley was the day's leading faller in the FTSE 100 yesterday, as analysts predicted the company needed a rights issue of around £750m after Monday's news that its debt had climbed to £3bn.
The company had been widely predicted to ask shareholders for some £400m with its trading update, which showed borrowings had risen by 22% and half year profits would fall by two-thirds. No such announcement came, but the City believes a fundraising is inevitable. John Messenger, at Royal Bank of Scotland, said Wolseley's reluctance to move quickly had left it open to further selling pressure. He reduced his price target price from 224p to 167p and repeated his sell rating. Panmure Gordon was another broker to cut its price target - this time from 280p to 170p. Wolseley closed 21p lower at 180p.
Elsewhere investors bailed out of water companies after Severn Trent forecast a surprise drop in revenues. The company said many industrial users were cutting costs or in some cases going out of business, which meant water usage was falling. Severn Trent slid 41p to £11.46 while Pennon, owner of South West Water, lost 15.25p to 466.25p and United Utilities dropped 16p to 567p.
With a number of miners falling back as metal prices declined, the FTSE 100 ended 14.60 points lower at 4194.41. Traders said there were signs of profit taking after Monday's 156 point rally.
Xstrata lost 35.5p to 685p on continuing talk that stakeholder Glencore might want to sell shares, while there were also suggestions that one of the big miners was preparing to sound out investors about a possible rights issue.
Among the banks, Barclays added another 1.3p to 90p after Monday's latest attempt to reassure the market on its financial position, while Royal Bank of Scotland rose 1.2p to 15.7p and Lloyds Banking Group closed 1.9p higher at 67.1p. Insurer Friends Provident rose 8.1p to 81.5p after reporting better than expected full year sales figures, amid renewed speculation of a possible bid from rival Resolution, down 1p at 104p.
But Intermediate Capital, a specialist in providing buyout finance, fell 160.5p to 414p after a gloomy trading update.
Lower down the market, Kalahari Minerals climbed 1.75p to 43.25p after it published better than expected results from a 39%-owned uranium prospect in Namibia. Analysts said the company could prove a target for Rio Tinto, which owns 13.9% of the business.