Royal Mail shares reach new record while Vodafone lifted by bid talk
(Guardian Web Via Acquire Media NewsEdge) The army of small investors who have so far resisted the temptation to sell their Royal Mail shares have been rewarded by seeing the company's shares hit yet another new peak.
Adding more fuel to the accusations that the business was sold too cheaply, it closed 14p higher at 574p on Friday, up 74% from the 330p level it floated at just three weeks ago. The move will also be welcomed by activist hedge fund TCI, which was recently revealed as the company's largest shareholder apart from the UK government.
The latest positive news driving the share price rise came when workers decided to call off a strike planned for next Monday, with the company and the Communications Workers Union saying they had made progress in talks over pay and conditions.
And soon there will be little escape from the company in the run-up to Christmas: viewers of the X-Factor and Downton Abbey will be regaled with a choir of Royal Mail workers singing its praises in its first TV adverts for six years, beginning tonight. Royal Mail has booked some 430 slots for the ads, which feature the workers singing All You Need is Love.
Elsewhere Vodafone was in the spotlight again. Most City conversations about the mobile phone group used to revolve around the possible sale of its US wireless joint venture to partner Verizon. Now that the two sides have finally agreed a $130bn deal, the speculation has quickly turned to the chances of the remainder of Vodafone receiving a bid from AT&T.
Vodafone's shares jumped 8p to 232.5p on Friday, making it the biggest riser in the leading index, following a report that AT&T - the second largest mobile group in the US after Verizon Wireless - was working on a bid which could come early next year. If such a deal went ahead it would create the world's largest telecoms company with a market capitalisation of more than $250bn.
Before Vodafone agreed to sell its US wireless business, it was widely rumoured that Verizon and AT&T had considered a joint break-up bid for the UK business. Despite that idea coming to nothing, the City believes AT&T could still be interested. AT&T boss Randall Stephenson fuelled the speculation in September by saying his company would buy wireless assets in Europe at the right price, and analysts have also recently been weighing up the prospects of a bid.
With Vodafone's help, the FTSE 100 finished at 6734.74, up 3.31 points on the day and 13 points higher over the week. But it was another volatile few days of trading, with the index hitting a new five month high of 6777 as the US Federal Reserve gathered for its latest policy meeting. The central bank decided to maintain its $85bn a month bond buying programme, much to investors' relief. But then came stronger than expected US manufacturing figures, which immediately rekindled concerns the Fed could start to turn off the money taps before the end of the year, and took some of the shine off shares.
James Knightley at ING Bank said:
The US ISM manufacturing index has surprisingly risen to 56.4 in October versus 56.2 in September and the consensus expectation of 55.0. [This] will help keep faint thoughts of a December Fed taper alive. However, the apparent loss of momentum in the labour market coupled with a likely soft third quarter GDP number next week could quickly see them fade again.
In the eurozone, the single currency came under pressure as an increasing number of economists suggested the European Central Bank could cut interest rates at its meeting next week, in the wake of a sharp drop in inflation. Howard Archer at IHS Global Insight said:
The sharp drop in eurozone consumer price inflation to 0.7% in October means that an ECB interest rate cut from 0.50% to 0.25% is now a very real possibility at its 7 November policy meeting. However, the ECB may prefer to hold fire until its December meeting when it will have available the new eurozone GDP and consumer price inflation forecasts from its staff
Either way, we expect the ECB to cut interest rates from 0.50% to 0.25% before the end of this year.
Royal Bank of Scotland slumped 7.5% to 340p after reporting a hefty third quarter loss of more than £600m. But the bank was not the recipient of the FTSE 100 wooden spoon. That honour went to Meggitt, which lost 63.5p or 11% to 509p after it warned of lower than expected sales. The aircraft parts supplier said it expected revenues to grow in the low single digits this year, down from its prediction in August of mid-single digit gains.
The company, which makes avionics and wheels for the likes of Airbus and Boeing, said trading in the four months to the middle of October had fallen slightly below expectations. It said:
[This was] principally due to short term production difficulties at Meggitt Sensing Systems and the timing of contract wins and project milestones in one of our energy businesses.
It said military revenues remained flat despite the US budget issues, but the strengthening of the pound against the dollar in the second half also had an effect. But it identified a raw material supply issue dating back to 2012, involving replacing various parts over the next few years at a cost of £20m. Analyst Chris Dyett at Investec said:
Meggitt's third quarter management statement is a disappointment, leading us to make pretax profit downgrades of around 7% for this year and next. Underlying trading is largely as expected, but a number of newly identified issues have impacted the second half and also 2014. In addition, a foreign exchange headwind has compounded the issues. Our new price target is 515p and we move to hold, expecting the stock to unwind part of the recent re-rating as well as reflecting the downgrade.
Better than expected Chinese PMI figures failed to lift the mining sector, with Antofagasta down 18p at 837p. Fears of Fed tapering outweighed the positive signs from China.
But Royal Dutch Shell B shares recovered 30p to 2189.5p after falling back in the wake of Thursday's disappointing figures.
Associated British Foods dipped 16p to £22.51, ahead of full year results next Tuesday. The City is keen to hear whether the company would countenance spinning off its successful Primark discount fashion retailer from its other businesses including British Sugar, and analysts will also want to know about Primark's expansion plans. The US is seen as a natural growth area for the business, with Morgan Stanley saying in a recent note that it could easily link up with shopping centre owner Westfield to tackle north America. The bank said:
Although management has not commented on US expansion and there is no visibility on the timeline, we believe the Primark format would be successful in the US given: 1) The success of European fast fashion retailers Topshop and ASOS in the US.2) The Primark store at Westfield, Stratford has been a clear success, paving the way for potential global collaboration between Primark and Westfield. Westfield operates 47 shopping malls in the US, which could provide Primark with the first leg of its US expansion.
Still with retail, Marks and Spencer fell 8.8p to 494.7p on profit taking ahead of figures next week. There was a flurry of excitement on Thursday following news that Bill Adderley, the billionaire founder of soft furnishings group Dunelm, had secretly amassed a 3% stake worth nearly £250m, making him the retailer's largest private shareholder.
Meanwhile French Connection lost 1p to 38.5p after gaining ground earlier in the week on suggestions Mike Ashley or his Sports Direct International could be interested in bidding.
Balfour Beatty, another company to report on bonfire night, dropped 3.7p to 282p as analysts at Liberum suggested the infrastructure group could issue a warning on the outlook. They said:
There could be fireworks – there is an evens chance of a downgrade to 2013, but investors may look through it if they believe it marks the end of the downgrade cycle. The 2013 result is contingent on no more contract surprises, the Australian mining project (Pilbara is looking increasingly safe) and the £15m Professional Services settlement (beyond analysis). Order book progress could underpin 2014 earnings and result in improving cash flow, re-assuring on the dividend. The shares offer margin recovery and exposure to the early cycle US.
Transport group Go-Ahead went into reverse, down 56p to £16.26 after UBS downgraded its recommendation from neutral to sell:
With core markets struggling for growth, we see no justification for premium valuations. Go-Ahead cannot be questioned operationally, but now has a negative risk- reward balance, in our view.
Finally drugs discovery minnow Summit Corporation was steady at 11.375p as its treatment for Duchenne Muscular Dystrophy received approval for a phase 1b clinical trial.
(c) 2013 Guardian Newspapers Limited.
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