Leading shares hit a new peak once more, as investors shrugged off the uncertainty of the UK general election and worries about Greece’s debt and US rate rises.
It was a bad news means good news day, with poor data from China and the US prompting talk of further stimulus measures from the former and for the latter, a delay in the Federal Reserve increasing borrowing costs. Sentiment was also lifted by the European Central Bank which, despite an unprecedented protest at its press conference, soothed nerves about the eurozone economy and the success so far of its QE bond buying programme. Even the prospect of Greece running out of cash as its next deadline approaches with agreement no closer failed to unsettle the markets.
There was also merger news to buoy investors, with telecoms groups Alcatel-Lucent and Nokia agreeing a dea.
So the FTSE 100 finished 21.52 points higher at 7096.78 having earlier crashed through the 7100 barrier, ecliping Friday’s closing record of 7089. The detail of the day’s economic data included China’s GDP growing by a lower than expected 7% in the first quarter and US industrial production falling by more than forecast. Rob Carnell at ING Bank said:
US March industrial production data does not provide any consolation after yesterday’s poor retail sales figures. Consensus was for a weak 0.3% month on month decline, but managed to exceed even this on the downside with a 0.6% fall.
Markets are no longer even talking about a June rate hike as a possibility. With data like this, it is not surprising. And if things don’t shape up soon, then even September is going to look a hawkish call.
With the prospect of further stimulus measures in China, mining shares provided support for the market. Anglo American added 15.5p to £10.55 and Rio Tinto rose 19.5p to £29.12. Mexican precious metals miner Fresnillo climbed 15.5p to 738p following its first quarter update, which showed a rise in silver and gold production of 18.9% and 62.4% year-on-year respectively.
Retailers were also in demand. Next added 175p to £72.85 after a positive note from JP Morgan Cazenove.
Dixons Carphone climbed 8.8p to 445.3p as it sold mobile virtual network company The Phone House Deutschland to German group Drillisch. Dixons will receive a 3% stake in Drillisch and a share of future cash flows.
Sainsbury rose 9.7p to 284.7p as it hosted a store tour for analysts.
Still with retail, JD Sports Fashion jumped nearly 6% to 539p after a 22% rise in full year profits, helped by demand for trainers in the UK and Europe. Rival Sports Direct International added 24.5p to 670p.
Elsewhere Weir, which supplies equipment to the oil industry, added 25p to £19.05 as the crude price continued to rise - Brent rose 2.4% to $59.85 a barrel by the time the London market closed. There was also some takeover speculation to add some spice.
AstraZeneca added 57.5p to 4857.5p as the US Food and Drug Administration decided not to recommend any restrictions on prescribing its diabetes drug Onglyza.
Old Mutual ended 0.7p higher at 236.1p. The South African insurer appointed Bruce Hemphill of Africa’s Standard Bank to replace chief executive Julian Roberts later this year, prompting talk of a further break up of the business to focus on South Africa. Bernstein analysts said:
Given Hemphill’s extensive background in South (and sub-Saharan) African financial services, we think the appointment is well-aligned to the strategic outlook for the group. Old Mutual is currently described by management as being at an “inflection point”, between the restructuring/consolidation phase of its strategy, and the next phase, which is operational execution. And furthermore, Old Mutual is increasingly focused upon South Africa and sub-Saharan Africa (with the potential further spin-out of its US Asset Management business and/or IPO of its UK Wealth business likely to further increase this focus in our view).
Hemphill appears well placed to take the group through this next phase, following the significant progress on stabilisation and re-focusing made by Julian Roberts since his appointment in 2008. Indeed, Hemphill’s appointment may even see an acceleration of this re-focusing upon Africa.
Among the mid-caps Virgin Money lost 22.1p to 399.9p on news that funds managed by US billionaire Wilbur Ross and Stanhope Investments sold 60m shares or 13.6% of the business at 400p a share.
Vesuvius, which makes ceramic moulds and linings for steelmakers and founderies, fell 30.1p to 470.4p, after JP Morgan Cazenove downgraded from overweight to neutral and Investec moved from add to hold on weak US steel production. Investec said:
Recent US steel production data show deteriorating volumes over the last two months and we expect this to affect demand for Vesuvius. While productivity enhancement is still attractive for the group’s steel and foundry customers, we have reduced our steel division revenue estimates by 4% (3% for the group) and assumed a 22% drop-through, reducing profits by 6-7%. Vesuvius is robust enough to cope with end-market fluctuations, but we have cut our valuation by 15p to 500p and taken a completely neutral stance.
Greggs gained 34p to £10.83 after an upbeat note from Canaccord Genuity:
Over the next five years Greggs could return nearly £250m to shareholders, equivalent to 23% of the equity, on our central assumptions, rising towards £400m on our most bullish scenario, equivalent to 36% of the equity. While the market has reacted strongly to the growing recovery story, we believe it has yet to fully grasp the scale of the potential returns of surplus cash to shareholders. We reiterate our buy for Greggs with a new 1300p share price target [from 980p] , implying 22% potential upside.
Greggs is one year into a five year plan to transform itself from a high street baker to a bakery food-on-the-go operator with broad appeal in the attractive quick service sector. It’s a strong self-help story where recovery is now firmly entrenched. We believe that all the ingredients are well mixed and baking together to ensure a sustained recovery in fortunes: over the next five years we forecast that Greggs will grow earnings per share by 11% compound annual growth rate, that free cashflow will grow by 27% to £79m and return on invested capital will bounce-back to 19%, well above its weighted average cost of capital of 5.6%.
Tullow Oil added 32.2p to 400.8p on renewed talk it could be a bid target. Goldman Sachs said:
We continue to believe that M&A will be a key driver for the industry, and more specifically for the exploration and production companies...We expect well-funded majors and national oil companies to scrap high-cost, high-complexity projects and focus on gaining exposure to low-cost projects via M&A. We see potential for 5-10m barrels a day of low-cost projects to move from E&Ps/independents to majors/national oil companies, substituting less attractive developments. We upgrade Tullow Oil and Africa Oil to buy from neutral, believing that both offer exposure to strategic assets which sit low on the cost curve.
Lower down the market Asian Citrus slumped 24% to 6.375p after it revealed it had discovered the presence of Huanglongbing or citrus greening disease at its Xinfeng Plantation in China. The disease leads to bitter, hard, misshapen oranges and is fatal once trees are infected. It said:
Based on an initial sampling that had been undertaken, which indicates an infection rate of approximately 18% of the total population in Xinfeng Plantation, the board wishes to make clear that the impact of HLB in Xinfeng Plantation will be significant, especially with regard to the 2015 winter harvest.
It said it was doing field work and tests to investigate the extent of the infection and what could be done to prevent the spread of the disease, including replanting. Ian Poulter, an analyst at the company’s broker Cantor Fitzgerald, said:
There is no guidance on the potential losses before the results of an investigation are known. We place our recommendation and target price under review pending more news from the company and noting the downside risk to our estimates.
Last month the company said its orange crop from the Hepu Plantation would be down 59% due to damage sustained from two typhoons.
Finally Asia Resource Minerals, the coal miner formerly known as Bumi and subject to a refinancing officer led by shareholder Nat Rothschild, soared 80% to 27p after news of a possible £210m bid from Indonesia’s Asia Coal Ventures.
