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Leading shares closed weak and just above their day's lows in a very lacklustre Friday trading session, with a rebound on Wall Street after the as-expected US PPI data failed to trigger any real support for the London market. The FTSE 100 index closed 52.8 points lower at 6,443.8, just above its low point for the session of 6,442.6, but still well below an early high of 6,504.1.
The FTSE broader indices remained mixed, with the techMARK 100 index the worst off, down 56.70 points at 3,479.73. But the FTSE Mid Cap and Smaller Cap indices managed to buck the dull trend, excited by bid talk and speculative interest. Volume remained a modest 1.201 billion shares in 93,010 transactions, though swollen by some massive trading in Vodafone AirTouch - where 122.5 million shares changed hands.
On Friday blue chips made a cautious start to trading in line with overnight falls on Wall Street, and led lower by further profit-taking in technology, media and telecom (TMT) issues following an about turn by the Nasdaq composite index in late deals the day before. However, in thin and volatile trade ahead of key US wholesale inflation data, the UK blue chip index managed to tick higher soon after open. With a lack of any real corporate news for direction, and no economic data to provide any dampener, London shares were squeezed higher, although overall interest remained thin. Nevertheless, the trading conditions took their toll, and by midmorning the UK blue chip index had swung back to its lows for the session as the earlier two-pull evaporated. There was little to help the market and, throughout the morning session, uncertainties over the possible outcome of the US wholesale inflation news and the likely repercussions for US interest rates kept the London market dull.
In the event, the US data provided a positive surprise, with headline producer prices flat in May, against analysts' forecasts for a 0.2 per cent increase. However, enthusiasm was tempered by the core producer price index, which rose 0.2 per cent, a shade above economists' forecasts for a 0.1 per cent rise. The announcement triggered a brief rally in the FTSE 100, which raced back in to positive territory, hitting session highs immediately after the data was released.
But this rally proved short-lived, and the thin Friday trading conditions soon exerted their pressures again, pulling UK blue chips back down again, with the FTSE 100 index drifting back throughout the afternoon session to finish near its lows for the day. Wall Street's morning rally in response to the PPI data was completely ignored, although by London's close the DJIA was 54.66 points higher at 10,722.38, while the Nasdaq composite index gained 57.66 points at 3,883.22.
Profit-taking in technology, media and telecom issues was the order of the day, with sentiment hit in early trade by Nasdaq's renewed weakness overnight, and as early gains on the tech-dominated Nasdaq in the afternoon session failed to inspire any real renewed confidence here.
Reuters was one of the biggest losers, down 83 pence at 1,060 pence, as investors mulled news that the information giant had delayed its planned Instinet.com launch. Sage Group also saw a hefty mark-down, 53 pence lower at 621 pence, hit by news that UBS Warburg has cut its current year estimates by five per cent, though the broker has repeated its "buy" rating and 875 pence price target.
Elsewhere, ARM Holdings was down 11-1/2 pence to 708 pence, Logica 105 pence down at 1,640 pence, Baltimore, off 18 pence at 577 pence, and Sema Group - exiled from one of Morgan Stanley's European investment lists - 28 pence lower at 940 pence. Telewest, which has seen good gains over recent days, also succumbed to profit-taking as investors awaited further news from the group's talks with Dutch cable operator UPC - with some suggesting that any deal is unlikely to be detailed before late next week. The stock closed down 15 pence at 287 pence.
Blue Circle was also on offer - down 19 pence to 417-1/2 pence - upset by news that the Canadian Competition Bureau has granted Lafarge of France around 2 years in which to reduce its stake to less than 10 per cent.
"Old economy" issues held sway in the FTSE 100 index leaders board, benefiting from the switch out of TMTs, and with utility and mining stocks seeing some good support. National Power rallied 5-3/4 pence to 399 pence, while Scottish & Southern firmed 20 pence to 540 pence, Billiton rose five pence to 259 pence, Rio Tinto firmed 29 pence to 1065 pence and Anglo-American gained 50 pence to 3,075 pence. Reckitt Benckiser pushed higher - up 25 pence to 755 pence - after its decline in response to the fourth quarter profit warning from US rival Procter & Gamble. The stock also derived support from news that Merrill Lynch has raised its rating on the stock to intermediate "buy" from "accumulate".
Psion attracted some limited fresh buying, up 7 pence at 636 pence, with news earlier in the week of its imminent exit from the FTSE 100 index now discounted. Freeserve was also well-bid, up 7 pence at 499 pence. Shares in Prudential gained 2 pence to 1,001 pence on reports that the IPO for its internet banking arm Egg has been up to five times oversubscribed despite warnings from banking analysts over the long-term future of the business. City pundits are divided on the prospects for Egg's first day close, with the spreads varying from a 160 pence low to a high of 193 pence.
Nevertheless, other financial issues suffered from ongoing concerns about the near-term interest rate outlook in the US, fearing that a Fed move in the next few weeks could trigger a similar hike in the UK when the Monetary Policy Committee meets next. Bank of Scotland shed 24 pence to 612 pence, while Lloyds TSB - which has been linked to Dutch insurance giant Fortis - fell back 20 pence to 693 pence and Woolwich eased 8 pence to 296 pence.
British Airways fell back 4-3/4 pence to 375-1/4 pence, as investors continued to fret about the terms of any tie-up with Dutch carrier KLM and the regulatory hurdles any such deal would have to jump. The slide in BSkyB - triggered by the Kirchgruppe placing earlier this week - continued, with investors now fretting about when French stakeholder Vivendi will sell three per cent of its holding in the UK satellite broadcaster into the market. Vivendi revealed that it plans to sell a three per cent stake in BSkyB in order to fund its 3G UMTS ambitions in the upcoming French licence awards round.
Sentiment was further affected by concerns about the possible cost of the upcoming Premier League football broadcast rights auction. In the last round, BSkyB paid some £671 million for the four-year package - but the feeling is that bidding this time could go as high as £2 billion. BSkyB's shares finished 2 pence lower at 1,143 pence. Shares in BAe Systems fell 11 pence to 400 pence, ignoring press reports that the firm and US defence giant Boeing are planning to make a joint bid to take over the UK air traffic control service. BAe Systems shares were also underpinned by news of its inclusion on Morgan Stanley's "European Fresh Money Buy List".
BAA
BAA, the airport operator, reported that profits before tax and exceptional items were down 2.6 per cent following the abolition of intra-EU duty-free for the year to 31 March. After a strong start to the year, BAA expects traffic growth in the current year to be just over 5 per cent. Airport charges at the UK airports increased by 8.7 per cent to £600 million. Income from retail operations was badly affected by the loss of duty-free sales to travellers within the European Union (EU).
The company has adapted to the new business environment by changes in store layout, promotional campaigns such as 40 per cent off perfume (compared with average UK high street prices) and a number of innovations made possible by the change in the law. These actions have enabled BAA to recover from the initial impact and contain the reduction in duty and tax-free income attributable to the change of tax regime to £67 million. Net retail income per passenger fell sharply in July 1999 to £2.99, 25 per cent below the level of July 1998, but has since risen steadily to £3.79 in March, with the fourth quarter (January-March) 13 per cent down on the same period last year.
BAA McArthurGlen is not a core business for BAA, but development of the centres will continue, while further steps are being taken to realise value from the business. With respect to Eurotunnel, BAA commenced an action in the High Court on 2 June for rescission of the contract with Eurotunnel and alternatively damages for misrepresentation and breach of warranty. In the action, BAA is seeking recovery of losses recorded to 31 March 2000 of £10.3m and future losses.
The loss of intra-EU duty-free means that BAA begins the current financial year with a slightly lower earnings base, but by refocusing on the core airports business, and the group's CEO believes the company has been strengthened fundamentally.
There is also a significant opportunity for BAA in the development of an international airport business, using core skills in airport and retail management. Restructuring its property interests had already enabled BAA to realise substantial value for shareholders and it is now considering similar partnerships and other vehicles that will enable us to develop other types of property around the airports, realising value and securing a stream of development profits without committing significant long-term capital resources.
BAA has generated net cash proceeds of £337 million during the year from the disposal of non-regulated assets. Consequently BAA intends to return up to £400 million to shareholders through a programme of on-market share buy-backs. The company currently has authority to buy back up to five per cent of its share capital and will be seeking shareholders' approval to increase this authority to 10 per cent at the annual general meeting.
BAA is making a substantial recovery from the loss of duty-free sales. Analysts expect profits for 2001 to reach £500 million.
Please note that the value of investments, and income (if any) yielded by them, may fall as well as rise, and you may not recover the full amount of your original investment. Past performance is not necessarily a guide to the future.
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