Volatility picks up as financials are hit hard again
11/07/2008
4th July - Footsie runs into sellers again as market volumes decline
The FTSE 100 index again ran into selling today as the focus remained on the beaten down stocks for which there was little respite, but volumes were low given the day off in the US. Bradford & Bingley fell again as leading shareholders had to step in and rescue its £400m fund raising after US private equity group Texas Pacific walked away. Marks & Spencer was also weak again on worries over its trading this year. Goldman Sachs yesterday cut its rating on Marks to "neutral" from "buy" after it reported a fall in Q1 like-for-like sales, and we are happy to remain short here with a 30% profit so far on our latest recommendation.
Over in the oil & gas sector, Origin Energy advised shareholders to reject a $13.1bn bid from BG Group, for which the latter brought out a predictably frosty response with regard to the options available to Origin. The market seems unsure as yet what will happen next, and with the shares almost unchanged, they are best left alone for the moment.
BHP Billiton has now reached an agreement with China's Baosteel on the price for iron ore deliveries for the contract year starting 1 April 2008. This followed on from Rio Tinto's doubling of ore prices recently and with a matching price rise, the market is satisfied here, though again we would not chase these shares at present.
7th July - Footsie picks up on bargain hunting early on
After last week's mauling, one or two bargain hunters were seen sniffing around the London market this morning with the FTSE 100 index was up around 25 points, and at the top of the list was Carphone Warehouse with a rise of over 4%. In the beaten down sectors, there was some good news from Easyjet which reported its June load factor remained strong at 86.9% and passenger numbers grew 19.5% to 4.1m compared to last year. Although loads on a rolling 12 month basis fell to 83.3% from 84%, total revenue per seat continued to improve and it said that to date nearly 70% of seats for H2 had been sold. These are good figures, and any sniff of an oil price fall would certainly set the shares alight.
Over the weekend the press was reporting more bad news from the housing market with thoughts that Persimmon will make 1,000 staff redundant when it speaks tomorrow to follow on from job losses at Barratt Developments and Taylor Wimpey. The latter's shares are down again today and you have to say there is a real chance of shareholders being left with nothing.
On the results front, Morgan Crucible saw turnover rise by 13% in H1. On a like-for-like basis, excluding acquisitions, revenue growth was expected to be around10%, and 4% on a constant currency basis. There was some reassurance on organic revenue growth guidance for the full year and consequently the shares were marked up 4% here. MGCR is a decent company operating in a sector with poor sentiment at present, so it is certainly one to watch for the future.
8th July - Big selloff hits the UK market again
We have been wondering whether or not there might be a major selloff before this market decline is over, and today has seen a huge fall on the FTSE 100 index as another slew of bad news comes in. There has been talk of another wedge of major writedowns in the banks sector both here and in the US, and talk of imminent UK recession has been rife.
Persimmon is down again even though it said it did not expect to announce any significant write down of its land values with its next interim results. It has now cut 1,100 jobs to save £20m per year, but with H1sales down a hefty 34% on the comparative period last year, the outlook is bleak and the shares look set for more new lows. Estate agent Savills has added to those sentiments as trading conditions for its UK and US Commercial Capital Markets businesses and its UK Residential and Mortgage Broking businesses have continued to deteriorate, with volumes down significantly on the comparable period in 2007. It said that predictions for the full year outcome were very difficult and this is a sector also deep in trouble.
Another big faller today is PartyGaming, which says gross revenues have fallen since April due to seasonality and competition from Euro 2008. Although Casino performed strongly, this was offset by a weaker than expected performance in poker and sports betting. With overall revenues slightly lower than expected, the recent rally in the shares has been reversed and this is another one for the bears right now.
9th July - Footsie sees strong buying from the off today
Yesterday's late rally on Wall Street suggests that for the first time in some weeks the smart money is beginning to buy into the market, and this has followed through with a good move in London. By mid-morning the FTSE 100 index was up over 50 points, and buying was seen in many beaten down stocks, including Alliance & Leicester, Yell and London Stock Exchange. The LSE rose after a trading update showed revenue for Q1 rose 8% to £178m or by 3% in constant currency. While another casualty of recent falls, Bradford & Bingley, bounced on reports that its main shareholders were firmly committed to its rescue. Whilst we would see this stock as too risky, we are tempted to dip our toes in some good recovery plays for a good bounce to come.
The other main story was yesterday's fall in crude oil prices, and this has boosted the airline stocks British Airways, Ryanair and Easyjet. FirstGroup is also going well, as is Carnival. Over in the housebuilding sector, Redrow and Bovis both said they would shed staff, and the latter is to cut its interim dividend by 75% to 5p to counter what it says is the worst market backdrop it has seen for many years. We remain bearish for now.
Another stock that has been in the doldrums is WPP, which has now launched a bid of 260.6p per share for Taylor Nelson Sofres. The bid consists of 173p in cash and 0.1889 of a new WPP share, and it will be interesting to see what happens next. WPP does have a good track record of acquisitions, but the timing looks a bit suspicious and we remain very cautious here.
10th July - US falls spill over into a weak London market
Yesterday's rally on the FTSE 100 index was short lived as the sharp drops seen in US financial stocks led to a 100 point fall in London this morning. Many of the beaten down stocks that had staged good moves were again hit hard, but the rise in volatility does suggest a potential trend change sooner than later.
In results, shares of Associated British Foods fell around 4% despite posting a 24% rise in Q3 revenues as it said like-for-like sales at its discount fashion chain Primark were held back by weak trading in April due to the deteriorating consumer background. The group also said difficult conditions were having an impact on consumer demand but aside from the sugar division, it still expected profit to rise in H2 in the rest of the group. This is a hard call, but you have to say these could go lower before things improve.
Back in the housebuilders, Barratt Developments announced 1,200 job cuts, and said it expected to take an £85m write-down hit in its full-year results. It said total completions in the year to 30th June 2008 rose 8.3% to 18,588 but fell 13.8% on a like-for-like basis. Although the shares have rallied 8% so far, we still see this as highly dangerous and a potential debt-for-equity swap may be the eventual outcome.
There was better news at Man Group, which said funds under management rose to $79.5bn at 30 June 2008 from $74.6bn at 31 March 2008. The accompanying statement was solid as usual, and the 3% rise looks fair so far. Once the overall market trends turn, Man Group should be in the forefront of the move.
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