Investors continue to be nervous over China, Ukraine and Fed tapering
On another down day for markets, with leading shares at a five week low, British Gas owner Centrica bucked the trend.
Its shares added 6.9p to 334.8p after an upbeat note on the business from analysts at HSBC. They said political risks were decreasing, helped by plans to focus investment on the US rather than UK, and there was hidden value in its upstream assets. With an overweight rating and 380p target price, they said:
It has been 12 months since Centrica's management announced a strategy announcement to focus investment on the US rather than the UK. This strategy was vindicated by the prospect of intervention in the UK supply market by the Labour party if elected to government in 2015 and the lack of political drive to offer attractive investment incentives for new gas-fired generation.At the full year results on 20 February, management pointed out that 20% of Centrica's customers are already on a fixed-price contract so progress has been made on encouraging customers to fix prices, which helps to mitigate political risk.Overall the FTSE 100 fell back for the fifth day running, down 67.12 points to 6553.78. More signs of a slowdown in China, with disappointing retail sales and factory output data, and a warning from premier Li Keqiang of severe challenges to the country's economy set the early downbeat tone. The continuing tensions in Ukraine ahead of a possible divisive referendum in Crimea on Sunday also unnerved investors, while good US data and comments from Federal Reserve nominee Stanley Fischer revived concerns about the Fed bringing its monthly bond buying programme to a gradual close. The US central bank releases its latest monthly update on Wednesday, and further tapering could well be on the cards.
Back in the UK, retailers were in the spotlight.
Morrisons slumped 27.8p or 12% to 205.2p after a new profit warning, with worries about a price war also hitting its rivals. J Sainsbury fell 28.3p to 304.9p and Tesco dropped 15.65p to 298.75p. The three supermarkets between them accounted for nearly 9 points of the FTSE 100's fall.
In contrast Home Retail, owner of Argos and Homebase, pleased investors with its trading update. It said pretax profit would be slightly ahead of current forecasts of £107m to £111m, helping push its shares up 10.3p to 215.4p. Homebase sales climbed 9.3% - a hefty increase which helped lift shares in Kingfisher, owner of the rival B&Q chain, by 4.5p to 407.4p.
Elsewhere Barclays was 1.9p better at 235.65p after a positive note from Numis:
Our Barclays recommendation is upgraded to add [from hold] and the target price is raised to 280p per share (from 274p). The investment case rests on: (i) improved gross leverage outlook; (ii) valuation upside; and (iii) a slowly improving European macro-economic outlook. Earnings downgrades reflect what is likely to be a weak first quarter for fixed income, currencies and commodities.G4S continued to fall after this week's results, down 4.5p to 228p. Panmure Gordon's Mike Allen said:
Post the analyst meeting, we have downgraded our 2014 and 2015 estimated earnings per share by 14%-15% to take account of foreign exchange, higher interest costs and contract specifics. The stock is currently trading on 17 times 2014 estimated earnings per share falling to 15 times in 2015, which looks rich to us given the execution risks that lie ahead. We are cutting our target price from 200p to 185p on the back of these downgrades, and maintain our sell recommendation on the stock.Vodafone fell 5.15p to 224.4p despite a recommendation from analysts at Barclays:
Investors in Vodafone face a dilemma. On the one hand the potential of a putative AT&T bid appears attractive, and the reported move to acquiring [Spanish cable company] Ono has clear industrial logic given synergies and [selling] opportunities in our view. However, wireless trends remain challenging, and recent commentary from AT&T would suggest a potential cooling. On balance we see upside risks outweighing downside, especially given the recent fall in the Vodafone share price. We reiterate overweight with a 260p price target.Among the mid-caps, gaming group Bwin.Party put on 4.5p to 126.6p after it said the summer World Cup should help it return to growth after problems in Greece and a move away from riskier markets hit its figures in 2013. Earnings fell to €108m from €165m, also hit by start up costs in New Jersey as it moves into the US to take advantage of deregulation there. Analysts said if management could not turn the business round, someone else might, noting that activist investor SpringOwl recently agreed to buy a 6.1% stake in Bwin.
Finally Circassia, an Oxford based allergy drug development firm, became the largest biotech flotation since at least 1995. The company raised £200m after setting its offer price at 310p a share, valuing the business at £581m. The company, which is bringing a vaccine against cat allergies to market, ended its first day of conditional dealings unchanged from the offer price.
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