WORLD FINANCIAL NEWS

Shares fall as Libya crisis intensifies

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FTSE 100 6,014.80 -1.12%
FTSE 250 11,727.66 -0.85%

The top share index was nursing big losses at trading’s close as worries over the turmoil in Libya sent the oil price soaring and continued high usage of the European Central Bank’s marginal lending facility stoked nervousness over banks.

Banks are granted the right to seek overnight loans from the European Central Bank, albeit at punitive rates, in the event of an urgent need for liquidity, and on Wednesday last week demand spiked to its highest level in more than 19 months, and went higher still on Thursday. Usage dipped on Friday to €14.2bn, down from €16bn on Thursday, but that figure is considerably higher than the normal level, which typically runs at about €1bn.

Royal Bank of Scotland (RBS) and Lloyds Banking, both of which are due to release results this week and both of which are reported to be in talks with sovereign wealth funds interested in buying the UK government’s stakes in the lenders, are hit hardest. though Barclays takes some licks too.

The oil price has topped $104 a barrel as protests spread across Libya. Fuel-hungry cruise operator Carnival is among the fallers. However, gold miner Centamin Egypt is winning back some of the losses it sustained during the turmoil in that country. Other precious metals miners, such as Fresnillo and Randgold Resources,also attract support in these nervy times.

Invensys is going well after weekend reports it is being stalked by international rivals considering a bid for the company. City sources say predators include Honeywell and Emerson Electric of the US, ABB of Switzerland, Alstom of France, Germany's Siemens and two Chinese firms, CSR and CNR.

Shares in grocery delivery group Ocado fell sharply today amid fears that a new delivery service operated by its main customer, the supermarket Waitrose, could hit sales hard.

South African paper and packaging firm Mondi increased full year pre-tax four fold and upped its dividend as demand continues to pickup from financial crisis levels. Pre-tax profit rose to €372m for the year ended 31 December 2010 from €49m a year earlier. Group revenue increased 18% to €6.2bn.

Royal Dutch Shell has agreed to sell most of its stake in nearly all its retail and distribution businesses in Africa to a private equity fund for around $1bn (£616m).

Property group Hammerson reported adjusted profit before tax of £144.5m for 2010, up from £130.0m in 2009. Profit adjusted for revaluations grew by 11% to £144.5m and adjusted net asset value per share had risen 17.6% to 495p by the end of 2010. Net rental income fell 3% to £284.7m, but was up 3.5% on a like for like basis. "This is a strong set of results which reinforces the strategy we are pursuing,” chairman John Nelson said.

Spirits brands giant Diageo is to buy Mey Içki, the leading spirits producer and distributor in Turkey. The company is being acquired for an enterprise value of TL3,300m (£1,300m) from investment firm TPG Capital and Actera. The transaction is expected to complete in the second half of 2011, subject to regulatory clearances.

In the FTSE 250, investors had an appetite for sausage skins maker Devro, which produced full-fat results for 2010 with operating margin improving sharply to 16.1% from 12.4%. Profit before tax and exceptional items in 2010 rose 44.4% to £36.3m from £25.1m in 2009.

However, bluetooth chip specialist CSR slumped after it unveiled a $680m merger with US peer Zoran accompanied by a $240m share buyback programme.

Property firm Great Portland Estates has swapped its freehold interest in 79/89 Oxford Street with a private investor in return for a new 250 year leasehold interest at both 79/89 Oxford Street and the adjoining property, 73/77 Oxford Street.

Soy sauce manufacturer China Food Company says that its full year figures will be moderately ahead of estimates, which has led its broker FinnCap to upgrade its 2010 profit estimate by £200,000.

Shares in Avingtrans, the designer, manufacturer and supplier of critical components and associated services to the energy, medical, industrial and global aerospace sectors, set a fresh 52-week high on Monday morning on news of a contract extension worth £5m over three years.

Australia-based loans provider and second hand products retailer Cash Converters International reported sharply higher profits in the six months to December 2010.

Power control components manufacturer XP Power has a habit of pleasing the market and today’s results provided another opportunity. Revenue grew 36% to £91.8m in 2010 but bookings rose even faster – up 51% at £103.4m – while underlying pre-tax profit more than doubled to £18.7m.

Speciality pharmaceutical company ProStrakan looks set to succumb to an agreed 130p a share bid from Japanese speciality drug company Kyowa Hakko Kirin. “The directors have recommended the offer and already 47.71% of the shares have been committed,” notes Charles Stanley analyst Franc Gregori.

FTSE 100 - Risers
Randgold Resources Ltd. (RRS) 5,235.00p +3.97%
Invensys (ISYS) 357.80p +3.71%
Fresnillo (FRES) 1,550.00p +2.85%
Hammerson (HMSO) 455.20p +1.72%
Tesco (TSCO) 413.50p +0.85%
Essar Energy (ESSR) 521.50p +0.68%
Morrison (Wm) Supermarkets (MRW) 286.30p +0.46%
Unilever (ULVR) 1,832.00p +0.27%
British Sky Broadcasting Group (BSY) 753.00p +0.13%
Reed Elsevier (REL) 564.50p +0.09%

FTSE 100 - Fallers
Lloyds Banking Group (LLOY) 66.55p -3.97%
Royal Bank of Scotland Group (RBS) 46.64p -3.89%
ARM Holdings (ARM) 597.00p -3.71%
Carnival (CCL) 2,808.00p -3.41%
Man Group (EMG) 294.70p -3.12%
International Consolidated Airlines Group SA (IAG) 239.50p -2.84%
Resolution Ltd. (RSL) 285.30p -2.76%
HSBC Holdings (HSBA) 704.40p -2.55%
Vedanta Resources (VED) 2,301.00p -2.54%
Pearson (PSON) 1,032.00p -2.46%

FTSE 250 - Risers
Centamin Egypt Ltd. (CEY) 129.30p +5.81%
Devro (DVO) 243.70p +5.04%
Booker Group (BOK) 58.30p +3.83%
Petropavlovsk (POG) 1,070.00p +3.58%
Hochschild Mining (HOC) 578.50p +2.66%
Kenmare Resources (KMR) 39.00p +2.63%
EnQuest (ENQ) 135.80p +2.57%
Charter International (CHTR) 750.50p +2.25%
Mondi (MNDI) 546.50p +2.15%
Go-Ahead Group (GOG) 1,435.00p +1.92%

FTSE 250 - Fallers
CSR (CSR) 392.00p -9.68%
Ocado Group (OCDO) 239.20p -7.75%
CPP Group (CPP) 290.00p -5.84%
Exillon Energy (EXI) 395.00p -5.14%
Heritage Oil (HOIL) 278.70p -5.14%
Avis Europe (AVE) 210.00p -4.98%
Premier Foods (PFD) 27.80p -3.97%
Ferrexpo (FXPO) 425.00p -3.23%
Schroder Asia Pacific Fund (SDP) 213.00p -2.96%
Hansen Transmissions International NV (DI) (HSN) 49.15p -2.87%

Higher oil prices on the back of unrest in Libya – an important supplier to Europe – helped send bourses lower.

The Dax 30 closed down 105 at 7,321 the CAC 40 finished 59 lower at 4,097 and the Spanish IBEX was down 257 at 10,810.

Italian oil firm Eni was particularly hard hit by events in Libya, with traders concerned that the protests will have an effect on the company’s operations in the North African country. Latest reports senior officials including the justice minister have stepped down after security forces shot at protestors in Tripoli.

Other Italian companies with interests in the region that were under a cloud include defence firm Finmeccanica and banking giant UniCredit. Austrian oil firm OMV, which also has exposure to Libya, is also on the slide.

Swiss banking giant UBS was an early bright spot after Goldman Sachs issued a “buy” note on the shares.

Dutch parcel delivery firm TNT delivered net income of €126m in the fourth quarter of 2010, up from €25m the year before, despite the effects of bad weather towards the end of the year which, along with integration costs and the fall-out from strikes, put a €45m dent in operating profits.

Sales edged up to €1.22bn from €1.21bn the year before.

Lager brewer Carlsberg issued results that were probably not the best results in the world. The Danish company’s fourth quarter post-tax profit was DKr.301m, down from DKr.383m the year before and well below the DKr.433m the market had been expecting.

Sales sank to DKr.13.40 from DKr.13.62bn in the fourth quarter of 2009.

The company thinks things are looking up in 2011, however, especially in Eastern Europe, where the Russian market is tipped to return to growth. Carlsberg is targeting adjusted net profit growth of more than 20% this year.

Broker Matrix Group said sales were 2.1% above its forecast but 1% below consensus, while earnings before interest, tax and amortisation (EBITA) was 2.7% below Matrix’s number and 2.3% below consensus.

“The miss was entirely down to central costs. The sales and EBITA of the beer division actually slightly beat our expectations in Northern and Western Europe and Eastern Europe and were in line with our forecast in Asia,” the broker said.

Matrix thinks current year forecasts will see a “sizeable increase” following the upbeat outlook statement. It rates the shares a “buy” saying they “are still at the bargain end of the sector” on 13.5 times current year projected earnings per share, versus 14.6 for Anheuser-Busch InBev and 17.2 for SABMiller.

Underlying earnings at Merck came in ahead of expectations in the fourth quarter at €1.79 a share; the market had pencilled in a figure of €1.49 for the drug maker's earnings per share.

In economic news, German business confidence rose to a record high in February, on the back of soaring exports. The Ifo institute’s business climate index climbed to 111.2 from 110.3 in January, defying economists’ expectations of an unchanged reading.

WS Atkins, Punch, Talvivaara
The threat of earnings downgrades has been hanging over WS Atkins but Numis thinks that over the medium term the engineering contractor’s growth prospects make the shares worth buying.

“Overshadowing the shares has been downgrade concerns - whether through UK Road spend pressures, the quality of earnings in the PBSJ acquisition or a higher pension cash payment,” notes Numis analyst Francesca Raleigh.

However, the broker is comforted that the group is becoming less dependent on the rail and roads business in the UK, which could see its contribution to earnings before interest, tax and amortisation (EBITA) slide to 13% of the group’s total. Meanwhile, the Atkins board is also making reassuring noises about the pension situation, indicating that it does not foresee a rise in cash contributions.

“In our view, the rating does not reflect the medium term growth prospects: a) circa 50% overseas - where there are good infrastructure spend prospects in the USA, Middle East and Globally in Energy; and b) The margin upside at PBSJ (each 1% adds £4.5m/c4.5% to profit before tax ) that will enable the shares to be re-rated to 11-12x” earnings per share,

At present, based on Numis’s projected earnings for the year to March 2012, the shares are trading on an earnings multiple of about 9.5, which the broker thinks is looking cheap for a stock that prior to the credit crunch shakeout was trading in the range of 12 to 16 in the years following the group’s Metronet (London Underground consortium) stumble. The projected dividend yield of 4.1% for the current financial year should also support the shares.

“This is a gentle re-rating situation and we would recommend starting to tuck these away as the news flow is likely to improve during the year and the stock will be seen as a US infrastructure and global energy play,” Raleigh concludes.

The broker’s price target of 882p equates to around 12 times projected earnings per share for the year to March 2012 or 11 times projected earnings for the year to March 2013.

A dismantling of debt burdened pubs group Punch Taverns could be on the cards, reckons Peel Hunt, with the group’s Spirit managed pub estate being sold to the highest bidder.

“Saturday’s FT reports that six bondholding institutions have approached Marston’s and Enterprise Inns (among others) to either buy or manage Punch’s 5,300 tenanted pubs in the event of default on the A and B securitisations,” notes Peel Hunt analyst Paul Hickman.

“The move, if correct, suggests that the bondholders do recognise the real possibility of default,” Hickman said. The broker has long argued that a straight default would be the most direct way to clarify value in the Spirit arm.

“Given the scale of Punch’s tenanted estate, we believe that both Marston’s and Enterprise would have significant issues with conflict on the ground against their own pubs. Such difficulties would make the prospect of default even less palatable to the bondholders and increase the relative attractions of continuation on reduced terms, as we suggested in our note [of December 2010]. This would have the advantage of giving the bondholders access to the administrative infrastructure necessary to operate the estate,” Hickman states.

Getting shot of the tenanted pub estate would leave the way clear for a rival such as Mitchells & Butlers to make a move on Spirit, the managed pub arm. “That could resolve the whole issue of Punch Taverns in short order,” claims Hickman.

Using as a benchmark the price Greene King paid for its acquisition of Cloverleaf Restaurants (8.7 times earnings), Peel Hunt has increased its price target for Punch from 96p to 100p.

There is more downside risk than upside at Finnish miner Talvivaara, reckons finnCap, with the broker suspecting company guidance on production estimates for 2011 and 2012 might be too optimistic.

“Last Thursday's disappointing fourth quarter results and subsequent interpretation of guidance from the conference call has led us to assume lower production estimates for 2011 and 2012 than those provided by the company. This is the first time we have deviated from guidance and is not something we undertake lightly, but we believe that metals recovery plant availability for 2011 is unlikely to average the required 91% to produce 30,000 tonnes of nickel,” explains finnCap analyst Joe Lunn.

The company had major issues in the first half of last year with the availability of the metal plant and even in the second half performance was “still running behind par,” Lunn notes, and with the company needing to time essential maintenance breaks carefully “we believe there remains significant downside risk to meeting its production targets”.

As a result of misgivings about the ambitious production targets, the broker has switched from a “buy” rating to a “sell”.

“Although we acknowledge the current supply tightness in the nickel market, our feeling is the company needs to make the market more confident that this year’s production target can be met before the shares can be rerated higher,” the broker concludes.

The broker has a price target of 490p for the stock.

Posted in: world financial news