Despite Chinese fears calm returns to market with chipmaker boosted by Investec buy note
Leading shares have recovered some ground after the recent rout, but drinks can maker Rexam has missed out following a warning on profits.
It said first half operating performance would be lower than the same time last year due to disappointing sales in western Europe and south America after a poor start to the summer drinks season. The company, which makes cans for the likes of Coca-Cola and Red Bull, said:
Whilst we have accelerated our cost mitigation measures, we now expect full year performance to be modestly lower than previously anticipated.
It announced the sale of its healthcare business, which accounted for 9% of 2012 sales. Sam Thomas at Cantor Fitzgerald said:
Rexam's trading update was disappointing with global beverage can volumes growth decelerating in the first half to +1% compared with +6% in both the first and second half of 2012. Whilst north America continues to experience strong growth, beverage can volumes in western Europe remain subdued. Growth in south America has been slower than expected, particularly in Brazil where capacity constraints continue to hinder growth rates.
Of particular note in today's statement, is the announcement of the disposal of Rexam's Healthcare business. In our view, the disposal of this non-core business is a positive step for Rexam, allowing management to focus on its principal beverage can business.
Rexam has dropped 21.2p to 443.9p or 4.5%, making it the biggest faller in a rising FTSE 100. The leading index is up 52.50 points at 6081.60 after traders took heart from comments from China's central bank about providing "appropriate liquidity management" and news of a Greek cabinet reshuffle. Markets have been almost in freefall in recent days, with fears of an end to America's quantitative easing programme, and the re-emergence of the eurozone crisis with Greece's political uncertainty. Investors were also spooked on Monday by a possible credit crunch in China. Mike van Dulken, head of research at Accendo Markets, said:
The bounce off 6,000 will have generated much excitement about this being the bottom. I'm not dismissing the value of round numbers (they are often conveniently helpful), and I like that fact that we have found support around the 6,040 level I suggested, but we cannot ignore or deny the fact that the index remains in a clear downtrend with myriad hurdles which could scupper the first hints of a recovery.
One stock which is showing signs of recovery after a recent torrid time is chipmaker Arm. It has come under pressure on concerns about growing competition, not least from Intel in the smartphone and tablet market. But it has added 33.5p to 792p after Investec moved from hold to buy:
Sentiment has turned from a one way bull run in Arm's stock during the second half of 2012 to a steady sell off, with the shares now down around 32% since the May analyst day. We see Arm as the most attractive long term investment in the sector with underpinned earnings growth. Negative sentiment, but strong fundamentals creates an attractive entry point in our view. The current price implies material near term market share losses which we see as unlikely. Trading around 20% below its historic average PE, 2014 estimated cash around 9% of the market cap and with a strong outlook, we move back to buy with a 1000p target price.
Not everyone agreed. Liberum Capital repeated its sell rating with analyst Janardan Menon saying:
Arm's share price is down 30% in the past month on concerns of Intel taking share in the Arm dominated smartphone and tablet markets. While much of our argument that Intel will take at least 15%-20% share from Arm in these markets is based on an analysis of the technology and Intel's comparable or lower levels of power consumption, Forbes in an article today states that Intel is also embarking on a subtle marketing campaign to gain share here.
It has got a program called the Creators Project which is a global arts and technology initiative. It has brought 100s of artists together to create original art while bringing together music, film, arts and technology on its websites. It has also staged live events in 6 countries. While at the end of the day the choice of processor for a smartphone or tablet vendor like Samsung, Apple, Nokia or HTC will depend primarily on the technological capabilities of the processor and its cost, any help with the branding and the coolness of the device would definitely be welcomed by them. We continue to believe that the market has not yet priced in the potential share loss for Arm to Intel.
Among the mid-caps Domino Printing has dropped 20p to 578p after it unveiled a 3% fall in first half profits to £25m, and warned of continued uncertainty in Europe.
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