Leading shares have drifted lower ahead of the US jobs figures later, with Greek uncertainties remaining, and another profit warning from Tate & Lyle to add to the nervous mood.
The FTSE 100 is currently down 26.42 points at 6839.51 as investors await the non-farm payroll numbers from across the Atlantic, with around 234,000 jobs expected to have been added last month. News that the UK’s trade deficit widened by more than expected in December, thanks to imports of cheap oil, has not helped.
Tate & Lyle has lost 81.5p or 12% to 583p as it said profits would be below the level it expected in September, its third warning in a year. It said profits would be “modestly below” the £230m to £245m range it had forecast in September, which it blamed on a weak performance from its sweeteners, corn syrup and industrial starches businesses. Martin Deboo at Jefferies said:
A third warning inside 12 months leads us to downgrade 2015 by 7% and 2016 by 18%. Bulk is underdelivering and supply chain issues are now revealed to have done permanent damage. We think the dividend is sustainable, which should provide support at around 550p, our new price target. But there are otherwise few immediate positives on this chilly February morning.
We expect Tate to have a rough morning. Worth bearing in mind, then, is that this remains a soundly-financed and well-invested business, with a coherent strategy and a growth track record in its core. The problems remain primarily those of execution, which should be fixable. But that fix must come, and come soon.
Tate is leading the FTSE 250 lower, while the biggest faller in the leading index is Barratt Developments, down 10.9p at 459.3p. The decline came as Liberum, in a hefty note on the sector, downgraded the business. Analyst Charlie Campbell said:
We cut Barratt from buy to hold as we no longer see enough upside. Barratt’s management has done a great job in transforming the company, working out of old land onto new land while reducing the balance sheet. Its London and South East exposure is around 40% of sales, which is positive because this area has seen the UK’s best job creation. To be more positive we need more clarity on volume ambitions beyond 2016 and returns to rise more quickly.
Among the risers Capita has climbed 24p to £11.67 as it was chosen to provide services such as IT and personnel services, worth up to £5bn, to the National Health Service. Robin Speakman at Shore Capital issued a hold note:
Whilst this framework inclusion may be seen as a positive for Capita, we take the view that, as with most other re-procurement activities, margins under existing contracts are likely to decline as contracts are rolled over, with risk that competition for contracts is at a higher level. This does not of course indicate, or guarantee, any additional work for Capita.
Aberdeen Asset Management has added 5.8p to 436.6p and Ashmore is up 3.8p to 297.8p as Societe Generale issued a positive note on the asset management groups:
The negative performance of emerging markets in recent quarters and the resultant weak sentiment towards these markets leave Aberdeen and Ashmore trading at a discount to both their two-year and five-year ratings.
We maintain our buy [rating] on Ashmore ....and raise our rating on Aberdeen to buy [from hold], reflecting a discounted valuation and the potential for yield enhancement.
A couple of days after its results GlaxoSmithKline has risen 20p to 1520.5p as the pharmaceuticals group announced positive results from a phase 111 trial of its dabrafenib and trametinib combination for treating melanoma. Analyst Brian White at Shore Capital said:
Importantly a positive overall survival benefit in the COMBI-d study forms part of the oncology asset sale to Novartis, $1.5bn contingent consideration determined by a positive overall survival outcome. This puts the final price paid by Novartis for GlaxoSmithKline’s oncology assets to $16bn, £4bn of which is due to be returned to investors via a B Share scheme following completion of the asset swap which also includes Glaxo’s purchase of Novartis’ Vaccines unit and the establishment of a Consumer Health joint venture controlled by Glaxo.
Savvas Neophytou at Panmure Gordon said:
The long awaited COMBI-d study reads out positively. This positive outcome will also trigger a $1.5bn earn-out from the disposal of the Oncology unit to Novartis, when it completes. Without a firm outlook in place and 2015 remaining a transitional year, it is too early to advocate putting new money in GlaxoSmithKline; we make no changes to forecast and re-iterate our hold recommendation.
