Advanced materials group follows in footsteps of Cookson by reporting disappointing trading
A profit warning from industrial group Morgan Crucible Company sent shares lower across the engineering sector.
The advanced materials company, which provides carbon technology services to the aerospace industry as well as ceramics and body armour, was hit earlier in the week after a sector peer Cookson issued its own warning of a slowdown.
But after it said trading had deteriorated in the third quarter across most of its markets, particularly in Europe and China, its shares lost 28.5p to 227.3p. The slowdown was most pronounced in its advanced materials and technology business, including a delay in body armour contracts from the second half until 2013.
Third quarter revenue was around 10% lower than in the first quarter, so its full year performance would be "materially below the board's previous expectations." It said it was taking actions to cut costs, with a £15m charge in 2012 but annual benefits of £7m to £8m.
Harry Philips at Oriel Securities said:
Following on from Cookson, it will be a case of spotting the next warning. IMI and Bodycote International will top many lists but the lack of a Chinese/Asian exposure will be a plus – much of Morgan and Cookson is the lack of an second half pick up the region.
IMI dropped 21.5p to 904p, Bodycote fell 22.9p to 351.3p, automotive and aerospace group GKN lost 7.1p to 209.9p, Cookson closed 9p lower at 530.5p and controls group Spectris slid 112p to £15.49.
In a rather timely move, analysts at N+1 Singer cut their recommendation Spectris from buy to hold. They said:
We have reduced our forecasts for Spectris, ahead of its third quarter trading statement next week, to reflect the weakening industrial backdrop. We have cut our earnings per share estimates by around 6% [for the next three years]. We have also reduced our target price from 1950p to 1780p.
Overall, the FTSE 100 fell 36.43 points to 5793.32 as Thursday's rally ran out of steam. Over the week the index lost around 80 points as the eurozone crisis dragged on, with investors anticipating a Spanish bailout request as Standard & Poor's downgraded the country's credit rating to BBB minus, one notch above junk status. Talks about Greece's austerity budget also continued, despite a flying visit from German chancellor Angela Merkel to Athens to show support for the country's government.
But better than expected US consumer confidence figures and helped limit the damage.
Banks turned in a mixed performance after contrasting results from US firms JP Morgan Chase - better than expected - and Wells Fargo - disappointing. Lloyds Banking Group added 0.45p to 39.7p but Barclays dipped 0.45p to 232.2p and Royal Bank of Scotland fell 2.9p to 270.9p. RBS floated its Direct Line subsidiary on Thursday at 175p a share, and the insurer closed at 186.5p, down 1.5p on the day.
Elsewhere it proved to be a mixed day for Roman Abramovich.
Evraz, the Russian steelmaker controlled by the billionaire owner of Chelsea football club, was the biggest faller in the FTSE 100, down 13.3p to 234.3p after it temporarily shut its Czech production line due to low demand. The European sector has been hit by the economic downturn, as well as rising costs and cheap imports.
At the same time analysts at Credit Suisse cut their recommendation from neutral to underperform and their target price from 310p to 200p, on falling iron ore and coking coal prices:
As Evraz has a high level of vertical integration with a fairly high cost of mining, it remains highly leveraged to the global bulk commodities' downcycles. As we downgrade iron ore and coking coal price assumptions for 2013-14, we expect a large portion of Evraz's mining operations to become loss-making in 2013.
But on the bright side for Abramovich, Aim-listed AFC Energy, the fuel cell company where his Ervington Investments is paying £8.7m for a 15% stake, added nearly 16% to 38.5p following Thursday's news of his involvement.
Kazakhmys closed 30.5p lower at 715.5p after Barclays moved from overweight to equal weight and cut its price target from 910p t0 765p in a hefty note on the mining sector. On the general market conditions, the bank said:
In 2012 we believe commodity and equity prices have followed a fairly logical and predictable path, as have company management teams. We believe the next step will be an increase in Chinese fixed asset investment, leading to further commodity and equity price increases.
On Kazakhmys in particular, it said:
Our view on Kazakhmys was premised on the assumptions that 1) management had its high cost structure under control and 2) the market had priced this in, neither of which was nor seems to be true now.
Among the mid-caps Bumi continued its recovery after plans to abandon its Indonesian coal business and become a cash shell, adding 21p to 280p.
WH Smith added 5p to 636p, recovering some of Thursday's fall in the wake of news that Kate Swann, widely regarded as having done a good job at the retailer, was stepping down as chief executive next summer. There was some speculation she could move on to Home Retail, down 0.7p at 104.3p, the owner of her former employer Argos. but analyst Nick Bubb said:
It was interesting that the shorts started to run for cover in Home Retail yesterday, on the fear that Kate Swann will march in as chief executive next summer and sort the business out, but successful executives don't usually go back to companies they've worked at before.
Hargreaves Lansdown moved 24p higher to 712p after an upbeat trading statement. The investment firm reported record assets under management of £2bn and revenues up 20% in the first quarter. It said:
Future stock market levels and investor confidence will have a significant part to play during the remainder of our financial year. In the coming months we will be launching our iPad app and a number of other major new initiatives.
It should also benefit from a shake-up of the way financial products are sold. From next year, commissions will be replaced by a fee-based system and Hargreaves believes it has put in place a competitive structure ahead of the changes.
BAE Systems fell 1.4p to 327.1p as the group began looking for a plan B following Wednesday's collapse of its proposed merger with EADS.
Elsewhere in the defence sector, Chemring climbed 7.4p to 342.7p after a deadline for US private equity group Carlyle to either make a firm offer or walk away was extended by the takeover panel from last night to 9 November.
Chemring said the move was "to enable the parties to continue their ongoing discussions regarding a possible offer."
The company, which makes flares, ejector seat mechanisms and bomb detectors, initially announced it had received an approach in mid-August, but a subsequent profit warning raised fears that the predator, Carlyle, might walk away, or at least make a lower offer than originally planned.
Analysts took the latest extension as a good sign. Roger Johnston at Edison Investment Research said:
[This] shows the two sides are trying to thrash out a deal. I still feel it is unlikely a trade buyer will emerge at this time and therefore this is all about price now. Carlyle will feel under no pressure to bid high while Chemring management will not want to go out with a whimper so this will be a finely balanced negotiation. I suggest a price around the 400p mark will be enough to clinch the deal, but whether Carlyle feels this reflects defence uncertainties enough is another matter.
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