FTSE 100 slips for second day running but Vodafone jumps on Verizon share sale talk
(Guardian Web Via Acquire Media NewsEdge) Leading shares slipped lower for the second day running, despite a strong performance from heavyweight stock Vodafone.
The telecoms group jumped 2.75p to 162.4p on rekindled hopes it could reap more than £50bn from its stake in US group Verizon Wireless.
Its partner, Verizon, said the wireless business had its strongest fourth quarter ever in 2012. But the real catalyst for Vodafone's rise was a comment from Verizon's chief executive Lowell McAdam that it was feasible for the US company to buy out Vodafone's 45% stake in their joint venture. He told the Wall Street Journal "we have always said we would love to own all of that asset." However analysts at Espirito Santo - which valued Vodafone's stake at around £50bn after accounting for tax - played down the idea of anything happening immediately:
That is a very supportive statement for Vodafone, and is probably true, but in our view the transaction would have to be executed over 3 years, in three annual 15% blocks, due to Verizon's relatively high level of net debt and the cashflow drag from its wireline business.
However, we do not believe that Vodafone is interested in selling at this stage: Verizon Wireless represents over half its earnings and is a rare source of growth, as well as underpinning its dividend growth too. In other words the offer price from Verizon would need to be compelling and we are not sure that it has the firepower for that, yet. It is more likely in our view that the status quo persists or a while longer, but it is also possible that Vodafone rolls its 45% stake up into Verizon itself, in exchange for a 30-40% stake in the overall Verizon Group.
Other possibilities which have been suggested by analysts recently include Verizon buying the whole of Vodafone and selling off the parts it does not want.
Vodafone's rise added just over 5 points to the FTSE 100 but this was not enough to stop the index dipping 10.95 points to 6053.63 after earlier climbing as high as 6088. Angus Campbell, head of market analysis at Capital Spreads, said:
A seesaw session today as buyers and sellers couldn't make up their minds as to whether the recent strength we've seen so far in 2013 has any more legs in it or that, bearing in mind the troubled waters that lie ahead, there's potential for a more comprehensive move to the downside.
The reluctance of the FTSE 100 to make any concerted effort towards posting gains was mainly down to a poor start to the US trading session across the pond, where the Dow Jones commenced in the red and continued lower ahead of the corporate earnings season which gets underway after the close tonight. Investors are just holding back on equities until there's a little more clarity on how corporate America is holding up following all that indecision regarding the fiscal cliff towards the end of last year.
Consumer stocks came under pressure on worries about discretionary spending being reined in, with Whitbread down 51p at £24.62. Tui Travel fell 9.8p to 276.8p as Morgan Stanley downgraded from equalweight to underweight.
The biggest FTSE 100 faller of the day was production and exploration group Tullow Oil,which lost 46p to £12.25 after Investec analyst Brian Gallagher downgraded from hold to sell:
Ahead of Tullow's trading and operational statement this Friday we downgrade the explorer to a sell and lower our sum of the parts-derived target price substantially to 1000p [from 1399p]. While still a best-in-class explorer, as Tullow has grown it has become increasingly leveraged to the "P" rather than the "E" side of its portfolio. We highlight a production profile that has slipped materially to the right, a looming capex bill and an exploration portfolio, that, while strong, may not have enough depth to offset fresh production disappointments.
But cruise specialist Carnival sailed up 35p to £24.35 as UBS raised its price target from £25 to £27.
Shire rose 49p to £19.63 after the pharmaceutical group unveiled a deal to buy US group Lotus Tissue Repair, which specialises in the treatment of genetic disorders.
Shortly after the market closed the company announced chief executive Angus Russell would be speaking at a healthcare conference in San Francisco later and would say Shire expected to deliver double digit full year earnings growth in 2012. It was increasingly confident of meeting expectations for 2013.
As the consumer electronics show continued in Las Vegas, chip designer Arm, whose technology is used in Apple products including the iPad, climbed 9p to 808.5p.
Credit Suisse raised its target price on the company from 645p to 780p and its earnings forecasts for 2012 by 3%, for 2013 by 10% and for 2014 by 12%, based on raised estimates for smartphone and tablet sales.
In a mixed day for miners, Anglo American added 27.5p to £20.28 after it unveiled Mark Cutifani of AngloGold as its new chief executive to replace Cynthia Carroll. Numis said:
Cutifani has been chief executive of AngloGold Ashanti since 2007 and is widely regarded to have had a successful tenor, leading a successful restructuring campaign across the business. He will start from 3 April 2013 with a £1.2m per annum salary plus incentives. Worth the money and a good hire in our view.
Centamin climbed nearly 9%, up 3.63p to 44.18p after another halted shipment of gold from Egypt was allowed to proceed.
But African Barrick Gold slumped more than 20% after takeover talks fell apart.
In August, parent company Barrick Gold Corporation said it was in talks with China National Gold Group about a sale of its 73.9% stake in African Barrick. Now Barrick has said the discussions have ended, and price appears to be the issue. African Barrick's chief executive Greg Hawkins said:
Whilst the discussions between China National and Barrick have not lead to a transaction, the process has re-emphasised the fundamental long-term value of African Barrick's portfolio and the scarcity of large scale producing opportunities to enter the gold market in Africa.
Shareholders were not so upbeat however, and the FTSE 250 company's shares dropped 91.9p to 352.1p. Kate Craig at Liberum Capital said:
A disappointing development - we had envisaged a bid at around 550p a share versus our net asset value of 418p a share.
Among the retailers Debenhams lost 9p to 108.1p as it sacrificed profit margins to lure in shoppers over the key Christmas period. Like for like sales in the five weeks to 5 January rose 5%, but Debenhams said it had stepped up promotions so margins for the year would be rise by around 10 basis points rather than the previously forecast 20 basis points.
Finally SQS Software Quality Systems finished 9% higher at 278.5p after announcing €64m of new business, including its largest ever contract win worth €25m over the next three years.
(c) 2013 Guardian Newspapers Limited.
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