Social network giant defies expectations of further falls, but investors elsewhere cautious on eurozone and US economies
After a near 50% slump in value following its much-hyped flotation in May, Facebook has recovered some of its poise despite the prospect of a wave of selling by company insiders.
On Wednesday, a restriction on Facebook employees and early investors selling around 800m of their shares was lifted, and traders were braced for the company to come under further pressure.
In the event Facebook shares jumped 11% on Wednesday and Thursday and added another 5% in early trading yesterday. Tim Ghriskey, investment manager at Solaris Group, told Reuters:
While the lockup is expiring there is nothing requiring anyone to sell. Given the low price these long-term holders are deciding to hold the stock, and that is lifting it as the fear of the expiration subsides.
It was not such a good week for other investors.
In the UK, leading shares fell to their lowest level for more than three and a half months on Friday, after a week of worries about the eurozone and US economies.
Greece managed to avoid defaulting on a €5bn loan payment after raising sufficient funds in a series of bond auctions, but its long term fate depends on the release of €31.5bn of funding from the EU and IMF, with another meeting due to take place next week. Meanwhile Spain continued to resist a bailout, and the eurozone officially went into recession as protests against austerity swept across Europe. Investors were also concerned about US spending cuts and tax rises due to come into effect next year, with discussions between President Obama and congress to resolve the so-called fiscal cliff likely to drag on.
The FTSE 100 closed 72.16 points lower at 5605.59, a level not seen since 26 July. The index has now risen just 30 points since the start of the year and is some 6% off the peak of 5965 reached in the middle of March.
With investors shying away from risk, mining groups and banks were among the leading fallers. Eurasian Natural Resources Corporation lost 14.8p to 259.6p and Rio Tinto fell 65.5p to 2934.5p.
Royal Bank of Scotland closed 4.8p lower at 277.4p while Lloyds Banking Group lost 1.725p to 43.975p. On Thursday a group of MPs on the public accounts committee said the £66bn of taxpayers money used to buy shares in Lloyds and RBS may never be recovered. In a sell note on Lloyds, Investec analyst Ian Gordon said:
We agree with the conclusion that the tax-payer will never get out clean, but why did UKFI [which manages the stakes in nationalised banks] fail to sell a few shares when Lloyds peaked at 78p in 2010, and why not sell a few now, while, in our view, Lloyds trades above fair value? Four months of falling UK house prices and 12 months of falling UK commercial property prices suggest that it may prove wise to reduce positions now.
Many Lloyds staff appear to adopt the same philosophy as the Public Accounts Committee when managing their own shareholdings, patiently waiting for the shares to rebound towards the 990p level at which (tax-free) profit-share allocations were distributed to employees over a decade ago. Sadly, we will all be dead before they get there.
Even a one time haven such as water company Pennon came under pressure. The company warned on profits on Thursday due to a slowdown at its waste business Viridor, and its shares fell another 29p to 599.5p.
Melrose, the industrial group, was the day's biggest faller in the leading index, down 27.1p to 208.9p as it cautioned about the outlook for 2013.
But outsourcing group Serco added 5.5p to 550p after it said new contract wins should help a revival in revenues after a first half decline. Earlier in the week rival Capita, down 4p to 713p, had said it expected a pick-up in UK public sector work ahead of the next election.
But G4S, down 1.9p to 244.1p, continued to suffer from the fiasco surrounding its London Olympics contract, when it failed to provide enough security staff for the games. Mark Hamilton, the managing director of its Olympics contract became the third director to leave the company in the wake of the problems.
Elsewhere Next dipped 8p to £35.42 despite Credit Suisse beginning coverage of the fashion retailer with an outperform rating and a target price of £42. The bank said Next's ability to add on extra space was slowing, it had a number of other ways to maintain its growth. These included service improvements to its Directory division to attract more customers, increasing the number of credit customers, expanding overseas and building sales of homeware products. It said:
Service levels are a key differentiator: The extended late cut-off (from 7pm to 9pm) has been responsible for around 4% growth at Directory over the last eighteen months and Next has a raft of service improvements being rolled out over the next year. We cautiously expect it to deliver an additional 2% growth next year but the impact could be considerably higher.
Next has run its credit book very conservatively through the downturn. Although it has started to increase account numbers over the last two years, receivables per account have been flat for the past six years. Given very low bad debt levels and high profitability, we would expect Next to steadily accelerate its credit book into a recovery.
Next has finally found a (very) profitable and scaleable route overseas, again driven by high service levels.
Homeware sales have risen from 10% to 20% of sales over the last decade, despite significant market weakness. Moreover, the middle market has been hollowed out by discounters and mass merchants. Given the high credit attachment rates, we believe Next's Home sales will accelerate over the next two years.
SuperGroup, the company behind the Superdry brand, lost 51.5p to 638.5p after analysts at Numis moved from hold to sell.
BP dropped 8.8p to 416.6p. Barclays issued an underweight recommendation after the oil giant was hit with a $4.5bn fine, the largest in US history, over the oil spill in the Gulf of Mexico.
Reports of price fixing in the gas wholesale market pushed energy companies lower, even though they all denied any wrongdoing. Centrica closed 3p lower at 313.5p yesterday while SSE slipped 26p to £13.64.
Finally Aim-listed South African miner DiamondCorp jumped 14% to 4p after it agreed a $6m loan with prestigious New York jeweller Tiffany & Co to fund development of its Lace mine. As part of the deal, the Fifth avenue based business - associated with the Audrey Hepburn film Breakfast at Tiffany's - will get first choice to buy diamonds from the mine. DiamondCorp's chief executive Paul Loudon said:
Their decision to provide project finance in return for access to a long-term supply agreement is testament to the quality of the Lace diamonds and an expression of confidence in DiamondCorp's development strategy.
Analysts at the company's broker SP Angel said:
The offtake agreement suggests that diamond buyers are prepared to help fund mine development in order to secure better quality stones on a long term basis. This is great news for DiamondCorp and for jobs in South Africa.
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