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UK blue chips closed a lacklustre Friday session sharply lower, echoing the slide seen on Wall Street as investors there locked in profits following the previous day's meteoric gains. The FTSE 100 index closed the session down 90.6 points at 6,378.4 points, just above its 6,366.8 low of the day, with most of the major sectors on offer.
The broader FTSE indices finished broadly lower, reversing earlier gains, with only the FTSE Smaller Cap index managing to buck the very weak trend - up 10.2 points at 3,403.9 points. Volume was a very solid 1.323 billion shares in 97,799 transactions, helped again by strong trading in Vodafone AirTouch and in Telewest.
After the meteoric gains seen in New York overnight, the hopes were for a firm Friday start in London - though activity was expected to be muted ahead of the key UK second quarter GDP data and the July options expiry at around 10.30 am. As it was, London started off in a dull mood as investors ignored the surge on Wall Street and, instead, chose to remain on the sidelines - with company news providing the main interest in early deals.
Sharp falls in Vodafone AirTouch - undermined by cautious comment from Ericsson with second quarter figures - and a further slide in the UK drugs stocks weighed heavily on the market. But selected technology stocks provided some support as buyers piled back in on the back of Nasdaq gains, with ARM Holdings a particular winner in the morning session.
The UK second quarter GDP growth data, which had provided a focus for the market in morning trade, was in the end something of a damp squib - as was the expiry of the July options series. Second quarter GDP grew 0.9 per cent from the first quarter, slightly above the 0.8 per cent growth predicted by the market, and - although the news failed to impact the market either way - must inevitably add to interest rate tensions after Chancellor of the Exchequer Gordon Brown's recent spending review.
The slow drift down continued throughout the Friday morning as attention the switched to whether Wall Street would be able to build on the gains seen the day before in the wake of Fed chairman Alan Greenspan's comments on the US economy. As it was, despite fears of a further US interest rate declining in the wake of his speech, US shares made a soft start - with all New York's main indices opening lower. The decline was blamed on profit-taking after the sparkling performance, as well as some disappointment at the latest round of second quarter earnings news.
Falls in New York were quickly matched in London, with telecoms, technology, drugs and financial issues all moving sharply lower. At the London close, the DJIA was down 107.48 points at 10,736.39, with the Nasdaq composite index off 72.42 points at 4,112.14 points. Corporate news provided the main interest throughout the day. The media sector remained in focus after Carlton Communications and United News & Media called off their planned merger, opening the way for a further reshuffling of the TV pack.
United News & Media climbed 14 pence to 958 pence after the group made it clear that it was still keen to be part of any consolidation in the UK television sector despite the decision to end merger talks with Carlton. But Carlton shares shed 18 pence to 806 pence on the merger termination news. Both parties said that the decision to sever the planned link-up was due to the DTI requirement to dispose of the Meridian ITV franchise, which they feel undermines the rationale of the deal.
Recently de-merged Granada Media saw its shares fall 31 pence to 577 pence - with SG Securities recommending a switch out of Granada Media shares into Carlton Communications. Shares in its parent Granada Group - which holds an 80 per cent stake in Granada Media - fell 20-1/2 pence to 613 pence.
Meanwhile, mining stocks were active after Anglo American stole a march on blue chip rival Rio Tinto by launching an agreed offer for North of Australia, topping a previous bid from Rio. In response, Anglo American shares shed 123 pence to 3,282 pence, with sentiment further hit by news of a downgrade to 'hold' from 'add' by UBS Warburg with a £35 price target on valuation grounds. Rio shares fell 18 pence to 1,060 pence in spite of a number of positive broker comment - SG Securities repeated its 'strong buy' on Rio, and UBS Warburg reiterated its 'buy' rating an 1,250 pence price target.
Financial issues also attracted attention after Alliance & Leicester continued the sector's interim results season and investors mulled the possibility of further consolidation moves after mutual Equitable Life put itself up for sale. Alliance & Leicester reported in-line interim results and a confident outlook statement.
However, its shares reversed early gains, as investors fretted about the rising cost base at the former building society and its comments that competition in the UK retail market remains intense. Alliance & Leicester finished the day down 10-1/2 pence at 486-1/2 pence - with even the current cheap rating failing to attract buyers. HSBC Securities, however, was maintaining the stock as an 'add' - a lone positive voice in an otherwise sceptical market.
Steel maker Corus Group also fell under pressure - down 2 pence at 88-1/2 pence - after confirming 1,300 more job losses at plants in South Wales. The Anglo-Dutch group continued to blame its woes on the strength of sterling. But it was Telewest that was the most notable blue chip faller, dropping 23 pence, or 8.91 per cent, to 235 pence after HSBC Securities downgraded its rating to 'sell' from 'hold' following news of delays to the roll-out of the firm's digital cable TV launch.
Certain tech stocks were hit by Nasdaq's early fall, a profits warning in the morning session from France's Groupe Bull and disappointing results from Sweden's Ericsson. ARM Holdings, a major riser in recent days, fell 6 pence to 834 pence, while Logica eased 30 pence to 1,770 pence. Sage Group - which operates in similar markets to Bull - fell back 11 pence at 550 pence, affected by Nasdaq's decline. Bookham Technolgy was the exception that proved the rule - up 335 pence at 4945 pence - supported by good institutional demand in very thin trade. But there were a few winners.
Utility stocks attracted some fresh interest, led by Energis - up 13 pence at 592 pence - after the 5-for-1 share split. Kingfisher rallied 7 pence to 560 pence, partially reversing the declines seen in the wake of the Schroder Salomon downgrade, with CSFB repeating its 'buy' advice after a meeting with the retailing group. SG Securities was also a fan, but Teather & Greenwood has cut its rating to 'hold' from 'add', and trimmed its forecasts.
Rolls-Royce continued to benefit from Farnborough Airshow factors, adding 1-1/2 pence to 232-1/4 pence on hopes of contract news. CSFB repeated its 'buy' rating and 330 pence price target. WPP Group saw good demand, adding 8 pence at 947 pence after announcing the acquisition of design and publishing firm, Warwicks. Singer & Friedlander topped the second line gainers - as it has done for most of the session - after it disclosed that first half pre-tax profit will be at least £90 million, well above the £32 million reported in the prior year. EPS for the period will be at least 18 pence a share, the company said. Singer & Friedlander shares closed up 19-1/2 at 244 on the news.
Stagecoach
Stagecoach, the bus and train operator announced that its restructuring programme for Coach USA is now underway. The new US subsidiary continues to struggle as the tight US labour market and high fuel prices have meant costs are outpacing revenue growth. Stagecoach's pre-tax profits for the year to 30 April, were reported at £182 million, representing a decline of 13 per cent on the previous year.
The group's chairman announced that Stagecoach is introducing significant economies of scale, facility consolidations and rationalisation. He argued that the UK Bus business has generated record free cash flows. There has, however, been a marginal decline in passenger volumes reflecting underlying industry trends. Cost increases have arisen as a result of labour market pressures and the focus is directed at initiatives across the UK to grow passenger volumes and revenue.
Stagecoach's overseas bus businesses in Hong Kong, New Zealand, Australia and Portugal have all delivered organic growth and underlying margins have improved significantly from an average of 14.5 per cent to 16.5 per cent. The restructuring programme in Hong Kong is complete and the outlook for the business is positive.
South West Trains (SWT) had another excellent year with further strong growth in passenger numbers. Operating margins increased to 10.5 per cent from 10.2 per cent and SWT has maintained punctuality at the previous year's level. Looking forward, rolling stock and infrastructure peak capacity constraints face SWT and it believes that these will be key considerations in the re-franchising process now underway. Stagecoach will submit a proposal to the shadow Strategic Rail Authority ("SSRA") for franchise extension and remain fully committed to the UK rail industry.
Virgin Rail Group has also experienced strong volume and revenue growth during the year. In the most recent SSRA performance statistics, the SSRA Chief Executive highlighted both franchises for making the most performance improvements. CrossCountry will receive new trains in 2001, good progress is being made on the first elements of the West Coast infrastructure upgrade and Stagecoach looks forward to the introduction of the new high speed services in 2002.
The UK Bus market is now recognised as a mature business and growth is coming from overseas markets which have a different risk profile. This has resulted in a re-rating of all the UK companies in the sector but Stagecoach's short term challenges at Coach USA and the inevitable uncertainty arising from a number of management changes have added to the negative sentiment about Stagecoach. However the fundamentals of the business remain strong and group's chairman remains confident that the recent management changes will strengthen the company's future performance.
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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