News Column

FTSE falls from seven week high on Ukraine tensions but CSR soars

August 28, 2014

Nick Fletcher, theguardian.com



Growing tensions in Ukraine, with reports of Russian troops entering the country, helped knock back global stock markets after recent gains.

The FTSE 100 fell back from its seven week high to finish 24.86 points lower at 6805.80.

Markets were on the back foot most of the day with weak eurozone consumer confidence figures - partly due to the situation in Ukraine - and rising German unemployment denting sentiment from the start. The escalation of fighting in Ukraine saw falls accelerate, with Germany's Dax dropping more than 1%.

All this outweighed better than expected figures from the US, where economic growth in the second quarter was stronger than expected, jobless claims fell for the second week and July pending home sales beat economists' forecasts.

Jasper Lawler, market analyst at CMC Markets UK, said:

Shares in Europe started on the back foot and never got the chance to take a step forward today after weak German inflation and unemployment data was made all the more worrisome by the prospective of no extra stimulus from the ECB in its upcoming meeting.

Downside momentum accelerated for stocks when Ukrainian President Poroshenko said that 15,000 Russian soldiers have been deployed into the Donetsk region in the east of the country. A Russian 'incursion' into Ukraine significantly dents the idea of a de-escalation after the presidential talks yesterday.

Mining shares were under pressure following a fall in iron ore prices in China, a key consumer of metals.

So Rio Tinto was down 126.5p at 32.09 while Anglo American was 55.5p lower at 1512.5p and BHP Billiton lost 54.5p to 18.91.

But building supplies group CRH climbed 28p to 14.26 after Credit Suisse raised its recommendation from underperform to outperform. The bank said:

[CRH[ has fallen around 20% from its 2014 high, without any associated earnings downgrade and as such has derated materially from 11 times to 8 times consensus EBITDA. This has presented an investment opportunity in a stock where we are increasingly upbeat about 2015 on account of both trading outlook in the US and Europe, and the extent to which sales growth will be amplified by significant operational leverage given the very depressed current state of group profitability.

Elsewhere CSR, whose chip designs are used in products such as mobile phones and bluetooth headsets, soared 205p to 780p after it confirmed a Financial Times report it had received a bid approach. The predator was US group Microchip Technology, but CSR said the proposed price had been rejected and it was considering its options for the company. Microchip now has until 25 September to make a firm bid, or walk away. Numis issued a buy note on CSR, saying:

In May, Microchip announced the acquisition of ISSC, a Taiwanese low end competitor of CSR's in Bluetooth, for $317m. The bulk of Microchip's business is in microcontrollers and with the onset of Internet of Things, it appears to be looking to gain connectvity capabilties. Given it has made such a recent acquisition in the space, it is somewhat surprising that it is now interested in acquiring CSR. The statement from CSR mentions no other talks with potential bidders, but given the FT article this morning it seems that other potential bidders are likely to be being sounded out now.

News of the approach also lifted peer Imagination Technologies, up 12.3 at 216.1p, and even FTSE 100 listed Arm, 4p better at 964.5p.

Supermarkets were also in the spotlight.

Morrisons rose 2.5p to 186.9p as Deutsche Bank moved from sell to hold, amid hopes that despite lower sales in Wednesday's latest figures from Kantar Worldpanel, the supermarket group might be turning the corner. But Deutsche downgraded Tesco, helping push its shares 3p lower to 246.3p. The bank said:

We continue to see fundamental valuation support for the shares but management change (new chief executive Dave Lewis will start on 1 October and new chief financial officer lan Stewart will start on 1 December) introduces the possibility for a change in strategy and competitive actions. Given low visibility as to potential changes, and their implications, and a lack of identifiable catalysts in the coming months, we lower our price target from 313p to 280p and downgrade from buy to hold.

Meanwhile shares in Morrisons' partner Ocado slumped 64.3p to 339.3p after a sell note from analysts at Redburn, who cut their sales forecasts and reduced their price target from 500p to 257p.

Tullow Oil added 10p to 731p after it reported successful results from a series of tests in Kenya. The Etom-1 well in the northern part of the Lokichar basin discovered 10 meters of net oil pay extending the proven oil basin northwards. The Amosing-2 and Ngamia-3 appraisal wells further south were also successful. Westhouse Securities said:

These results are an incremental positive but worth only a few pence on the share price at this time.

One of the day's big fallers was inkjet specialist Xaar, down 121p or 22% to 439p after it cut its revenue forecast from the 130m it expected last month to between 115m and 125m. It blamed weaker demand from the ceramic tile sector, linked to a slowdown in construction activity in China. The company has already issued one warning in June. Analysts said the price fall could leave it vulnerable to a bid.

But Playtech, which supplies software for sports betting and online gaming businesses, put on 49p to 712p after it said full year profits were expected to come in ahead of forecasts, helped by contract wins in Mexico, the UK and Italy. Half year adjusted profits rose 44.8% to 96.8m. Canaccord Genuity said:

The shares have fallen 6% year to date (admittedly, following stellar performances in 2012/2013) and trade on a 2014 forecast enterprise value/Ebitda of just 10.2 times and PE of 13.7 times (falling to 12 times, after stripping out net cash). We see this as highly attractive for a technology leader in a dynamic market, particularly given potential fire power for deals with 442m of projected year-end net cash if it acquired 442m of businesses on an 8 times Ebitda multiple, it would be around 23% earnings per share enhancing in the first year. We raise our target price from 825p to 840p [which] represents 27% potential upside from current levels.

Unite dipped 2.2p to 438p despite the student accommodation specialist reporting a 34% rise in half year earnings to 20.4m. The company is confident about the outlook, with student numbers expected to increase in the coming years. It said:

The outlook for our sector remains very strong with university applications for 2014 up 3.6% year-on-year. Applications continue to outstrip available places significantly (by 180,000 in 2013 and forecast to be at similar levels in 2014) and with the government increasing the number of funded places by 30,000 for 2014 and lifting the cap on places altogether for 2015 we expect to see this strong demand translate into consistently higher student numbers in the coming years.

Finally Afren, the oil explorer which last month suspended its chief executive and chief operating officer after discovering "unauthorised payments" allegedly for their potential benefit, has now made a similar decision regarding two associate directors. The two, Iain Wright and Galib Virani, have been temporarily suspended after the board said it was made aware by them that they had received payments linked to the previously identified sums.

Afren fell 11p to 99.5p.


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Source: Guardian Web


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