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Market report: Debenhams has best day in two years

House of Fraser could close stores to help cost-cut
House of Fraser could close stores to help cost-cut

Embattled department store Debenhams enjoyed its best intraday surge in just under two years on hopes that store closures at rival House of Fraser could ease the pressure mounting on the high street struggler.

With huge stores located in town centres hard hit by the “Amazonification” of retail, Debenhams and House of Fraser have become symbols of the UK high street decline.

Chinese firm C.banner International Holdings confirmed on Wednesday that it had snapped up a controlling stake in House of Fraser, a deal that hinges on the department store entering a CVA to cut costs by closing underperforming stores and renegotiating rents.

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The shake-up, which also puts thousands of jobs at risk, could “be overdue good news for Debenhams”, Peel Hunt told clients.

The market value of Debenhams has dwindled from over £1.1bn to around £300m in just three years as its more nimble and cheaper online rivals grab market share. A profit warning in January and its “Spring Spectacular” promotion being knocked by the cold snap have ramped up the pressure on the department store.

Peel Hunt also argued that House of Fraser dumping some of its large stores will catch the eye of Debenhams’ top shareholder Sports Direct, which has ambitions of becoming the “Selfridges of sport”.

Despite Peel Hunt cautioning that it “wouldn’t overplay” the impact of House of Fraser’s struggles on peers, investors piled into Debenhams, lifting it 1.1p, or 4.7pc, to 24.6p. Sports Direct inched 1.3p higher to 405.2p.

Elsewhere, BT shares endured their worst day of trading in 2018 after Barclays analysts warned that the FTSE 100 firm’s wholesale business in the UK looks vulnerable to competition.

In a downgrade to “equal weight”, analyst Maurice Patrick highlighted the impact of wholesale-only firm Open Fiber in Italy as a possible warning sign for BT.

FTSE 250 transport company Go-Ahead plunged 219p to £17.35 after Deutsche Bank analysts predicted that the Southern Rail operator will not have the cash to cover its dividend over the next three years. After its shares were buoyed by a read across from private equity firm Apollo’s bid for rival FirstGroup, Deutsche questioned its value for investors.

Sainsbury’s slipped back 3p to 302p after MPs urged the competition watchdog to investigate the impact of its proposed mega-merger with Asda.

On London’s junior market, Bahamas Petroleum skyrocketed 2.1p to 3.2p after bagging a tie-up with an undisclosed “major international oil company”.

Focus on markets returned to simmering trade tensions between the US and China as Donald Trump’s team arrived in Beijing for crunch talks. With the US president calling for a “level playing field” on trade, and China vowing to “stand up” to the US, dwindling hopes of a breakthrough in talks sent global stocks sliding.

The FTSE 100 closed 40.51 points lower at 7,502.69, while Wall Street was hit hard by a disappointing batch of earnings.