Caution returns after initial enthusiasm as US index shows manufacturing fell back in November
Cable & Wireless Communications has begun its restructuring with a near $1bn disposal.
The company has sold the bulk of its businesses in the Monaco & Islands division for an initial $680m in cash to Bahrain communications group Batelco. CWC is keeping a 75% stake in Monaco Telecom but has the right to sell it to Batelco within 12 months for another $345m. The deal is part of the group's strategy to reduce its geographical spread and focus on central America and the Caribbean, with its Macau business also currently on the block.
The news lifted CWC shares more than 1% to 35.1p but they came off their early highs.
The same was true of the market in general. Things began well enough following good manufacturing data from China and a better than expected purchasing managers' index number from the UK, as well as further details of Greece's bond buying programme. But a slowdown in US manufacturing as evidenced by Novembers ISM survey took the shine off, and the FTSE 100 finished just 4.42 points higher at 5871.24. Joshua Raymond, chief market strategist at City Index said:
The FTSE 100 rallied 17 points to briefly breach the psychologically important 5900 level but a sell off from this level of resistance is yet again something that needs to be watched. A failure to break above 5900 soon could prevent the FTSE 100 from enjoying a 'santa rally', whilst a sell off below 5860 and 5800 could indicate a potential correction of 3%-5%. The sell-off in late trading was more of a technical reaction than fundamental.
Among the risers, ITV added 1.5p to 100.4p following a positive note from Panmure Gordon in the wake of the finale of its jungle reality show. Analyst Alex DeGroote said:
According to ITV, the final of I'm a Celebrity had a peak audience of 10.6 million, which was a 47% share of TV viewers. This is significant because the ability to deliver major prime-time audiences is key to advertising and, in turn, content/format sales. If anything, the entertainment genre – as opposed to drama – has been tougher for ITV this year. The shares remain well supported and, in our view, the valuation is attractive.
Reed Elsevier continued to benefit from a positive recommendation on Friday from JP Morgan Cazenove, which raised its target price from 675p to 685p with an overweight rating. Reed closed 8p higher at 650.5p.
Schroders moved 25p higher to £16.21 after analysts at Bank of America Merrill Lynch moved from neutral to buy. The bank said:
We have liked Schroders as a business for some time, but now believe that the combination of strong positioning and a supportive backdrop outweighs the disadvantage of an over-padded balance sheet.
But Royal Bank of Scotland dipped 2.6p to 292.6p after the latest bank net lending figures. Reports also suggested RBS planned to resume dividend payments in 2014, which would then lead to the UK government selling its near 80% stake through four share offerings over a ten year period. Gary Greenwood at Shore Capital said:
If true, this would represent a very lengthy exit process for the government, thus representing a considerable overhang for the shares for some time to come. Of course, we would also expect such plans to be subject to considerable change given prevailing market conditions, such that there can be no certainty, in our view, that this path will ultimately be followed.
Heading higher was Paragon, the buy-to-let lender. It added 1.8p to 242p after it confirmed reports it was seeking a banking licence with the possible purchase of Hampshire Trust, a private bank which offers loans and development finance. Espirito Santo said:
For Paragon the attraction is that the banking licence offers deposit accounts and savings bonds which Paragon could use as a source of retail funding. This would diversify Paragon's sources of funding and enable it to meet the demand it is experiencing from retail borrowers it has acquired through its recent portfolio acquisitions once they have repaid their loans – an opportunity management said they are currently having to turn down. Although this is still early stages, it does highlight managements proactive approach to increasing return on equity within the business and adds to our belief that there is significant value within the group.
Elsewhere Enterprise Inns rose 4p to 90p after Deutsche Bank moved from hold to buy and raised its price target from 105p to 135p. The bank said:
During 2012, the group's corporate and securitised bond holders saw the market value of their investment rise by around £340m while the equity investors have managed less than half of that. Even after this year's run, the share price remains 35% below the levels of April 2010, when the group was in poorer shape. We see 2013 as the year when the equity holders reap most of the upside in the market value.
Since the pub group's results on 20 November, its shares have risen around 35%.
Finally Asos slipped 1p to £24.75 following reports that Amazon planned to start a premium fashion site in the UK.
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