|
Investors Corner
The Market
Leading shares closed the Friday session and the week flat,
with falls in the heavyweight telecoms and oils sector offsetting
a firm start on Nasdaq – though the DJIA was lower as investors
reacted cautiously to mixed US data, with weaker than expected
headline figures offset by above-forecast hourly earnings. Banking
stocks still featured strongly on the blue chip leader board,
though selected technology issues gained pace on the FTSE 100
– buoyed by Cisco’s upgrade to ‘strong buy’
by CSFB and a rising Nasdaq index.
In the UK, the FTSE 100 index finished down 6.6 points at 6,385.4
points, well off its early Friday morning high of 6,431.7 points,
but above a mid-afternoon low of 6,382.1 points. But the wider
indices all rested in positive territory, with the techMARK
putting in a sparkling performance, up a short 62 points, on
Nasdaq early gains. Volume remained hefty – swollen by
massive trading in Vodafone shares after the previous day’s
late sell-off – with a total of 1.778 billion shares changing
hands in 118,885 transactions.
Blue chip stocks started the morning in fine fettle, finding
support from the strong overnight performance on Nasdaq and
excited by news of the possible merger between Abbey National
and Bank of Scotland – which provided a boost to banks
across the board. Sentiment was also aided by a bounce back
in Vodafone after the previous day’s dramatic late slide
– though the rally ran out of steam later in the session
as further downgrades hit the market.
But the early enthusiasm for the market began to peter out as
the morning progressed, with little fresh corporate news or
action to provide any real impetus. News of further ECB intervention
added to the more cautious tone, with another concerted round
of intervention seen late in the day. But the real focus for
markets on both sides of the Atlantic was the US jobs data.
Most analysts felt the data provided little clear insight on
the next move in US interest rates, with weaker than expected
headline figures offset by above-forecast hourly earnings. Certainly,
it seems to be still too early to say that US interest rates
have peaked, with the real key the next GDP data. The data showed
the creation of 137,000 jobs in October, well short of forecasts
of 190,000 and down from September’s revised figure of
195,000.
The unemployment rate held steady at 3.9 per cent – equalling
the low reached in April and September – compared with
analysts’ forecasts of a four per cent rate. But concerns
were raised by October hourly earnings, which came in ahead
of forecasts, posting a 0.4 per cent rise against expectations
of 0.3 per cent. The jobs figures, combined with selected weakness
in the telecoms and a weak oil sector, pushed UK stocks back
into negative territory – with even the stellar gains in
selected bank and technology issues failing to excite.
At the London close, the Nasdaq was up 25.42 points at 3,454.44
points, while the DJIA fell back 75 points to 10,805.62 points.
Banking stocks continued to steal the limelight after Abbey
National confirmed it has approached Bank of Scotland about
a possible £22 billion merger. Bank of Scotland’s
shares tumbled off their earlier highs, however, after questions
emerged over the success of Abbey’s take-over approach:
“It seems unlikely that Abbey National’s approach
will lead to a satisfactory transaction for Bank of Scotland’s
shareholders,” the Scottish bank said in a statement.
Analysts believe that Abbey National’s head is now on the
block, with Lloyds TSB or National Bank of Australia seen as
possible contenders for the mortgage bank, as it becomes increasingly
likely that the Bank of Scotland talks will flounder. Abbey
National shares were up 71 pence at 1,040 pence, while Bank
of Scotland was 14 pence ahead at 690 pence.
Other potential banking bid candidates also firmed, with Schroders’
non-voting shares leading the index, rising 92 pence to 1,205
pence, while its ordinary shares added 78 pence at 1,401 pence;
Alliance & Leicester was 27 pence ahead at 633 pence and
Halifax was up 24 pence at 599 pence. However, Lloyds TSB –
long seen as a likely banking predator – narrowed its losses
but remained 4-1/2 pence lower at 713-1/2, with other clearers
similarly lower: Royal Bank of Scotland was 49 pence lower at
1,562, while Barclays lost 22 pence at 1,977 pence – both
upset by competition fears should the planned merger
go-ahead.
Elsewhere, market heavyweight Vodafone remained in focus as
news of further broker downgrades filtered through to the markets,
after its shares slumped on reports of downgrades by joint “house”
brokers UBS Warburg and Deutsche Bank.
Merrill Lynch became the latest brokerage to have trimmed figures
for the group this morning, cutting its price target to 400
pence from 525 pence, though it reiterated its “buy”
stance. Merrill Lynch is believed to have cut EBITDA figures
for the current year by one per cent to £7.07 billion.
ABN Amro are also poised to take out the red pens.
Both UBS Warburg and Deutsche Bank confirmed cuts in their earnings
forecasts for the mobile phones behemoth – with Deutsche
Bank reducing its 18-month price target for Vodafone to 375
pence from 465 pence. Vodafone shares finished the session flat
at 253 pence, falling back from earlier highs, with some 450
million shares changing hands – just below the level seen
on the previous day.
BAA
BAA, the airports operator, reported a 97 per cent increase
in pre-tax profits to £321 million for the half-year to
30 September. BAA claimed that it has started addressing the
problems that it faced last October. First, its airport retail
business has recovered well from the abolition of intra-EU duty-free.
Second, in respect of World Duty Free, it has nearly completed
the closure of the loss-making in-flight business within the
provision made last year and World Duty Free Americas is now
performing better. Third, legal action has been initiated with
respect to the Eurotunnel contract.
After BAA’s strategic review, the group announced that
it would focus on its core airports business and that is exactly
what it started doing. In the meantime, it continues to look
at opportunities for profitable growth in its international
business and in e-business.
Strong traffic growth, 6.6 per cent in the first six months,
continues at BAA’s UK airports. In particular, the three
south-east airports experienced growth of 7.1 per cent and BAA
continues to invest to improve facilities and services for passengers.
The £200 million capacity project at Stansted is well
underway and ahead of programme. This project will allow Stansted,
where passenger numbers are currently growing at over 20 per
cent per annum, to continue to grow.
Growth has been re-established in UK airports’ net retail
income. The second quarter is the first one in which the year-on-year
comparison is like-for-like following the abolition of intra-EU
duty-free. This quarter shows an encouraging improvement in
retail performance.
Both net retail income and net retail income per passenger increased
significantly by 14 per cent and seven per cent respectively.
Indications are that duty and tax-free trading has stabilised
and new base levels have been established.
Additionally, it is very clear from the 14 per cent growth in
non-duty and tax-free net retail income that the strategies
implemented in areas unaffected by the change in legislation
have also been successful. BAA can now look forward positively
to the continuing growth of its core airports business.
However, following the publication of BAA’s interim results,
Schroder Salomon Smith Barney downgraded BAA’s rating.
The US-owned brokerage has trimmed its stance on the UK airports
operator to “outperform” from “buy” in the
wake of the in-line interim results, with the move thought to
have been made on valuation grounds. Other brokers retained
a more neutral stance on BAA after the figures, with Deutsche
Bank keeping its “market perform” rating with a 550
pence sum-of-the-parts valuation, and Goldman Sachs reiterating
its “market performer” stance.
Pilkington
Pilkington, the glass manufacturing group, reported a 52 per
cent in pre-tax profits to £79 million for the six months
to 30 September. Exceptional items of £23 million were
charged in the half year, £9 million of this related to
the settlement of long standing litigation in the US with the
balance of £14 million related to redundancy and restructuring
costs, in line with estimates previously given.
After taking account of capital expenditure and funding of the
purchase of shares in subsidiaries from Nippon Sheet Glass,
as well as exchange effects, net borrowings were £613
million, £44 million lower than at the same time a year
ago. In North America the Building Products business’ profitability
was seriously affected by the poor performance of two float
tanks due for repair. One of these was successfully repaired
during the period and the other will be repaired in the second
half. The business was also hit by an increase in energy costs,
particularly natural gas prices. The result was substantially
below that of the previous year.
Meanwhile, the automotive glass business in Australasia experienced
relatively weak demand in the period but car sales are now rising
following the introduction of the new Goods and Services Tax.
Implementation of the final phase of the step change programme
in North America is well under way. New work systems are being
introduced on the float lines, cost reductions are in hand and
restructuring of the fabricating plant configuration is on track.
Following the successful completion of the purchase of the Polish
Government’s shares in Pilkington’s Polish float line,
the Group has now agreed to acquire the remaining outstanding
21 per cent minority shares for a total cost of approximately
£17.5 million thereby raising its ownership to 100 per
cent. The acquisition is expected to be completed by the end
of October.
Pilkington and St Gobain announced the construction of a fourth
float glass plant in Brazil to be owned and operated by their
jointly owned company, Cebrace. The plant is due to come on
stream at the end of 2002. Underlying conditions in the world’s
glass markets continue to be favourable. Float glass prices
remain firm virtually everywhere. Both the Building and Automotive
business lines are continuing to perform strongly. Despite higher
energy prices, the group now has a competitive cost position
as a result of the fundamental restructuring of the last three
years.
|
