Burberry falls on China worries as FTSE 100 drops 1% after central bank comments
(Guardian Web Via Acquire Media NewsEdge) As markets headed south after a promising start, luxury group Burberrywas the biggest loser in the leading index.
The company dropped 93p to £13.37 as it announced a series of management changes, but the reshuffle was not the main reason for the slide.
Instead investors took notice of a report suggesting that China would ban advertising for expensive luxury items, which could hit the sectors' hopes for strong growth from the region.
As for the executive changes, Burberry's chief financial officer Stacey Cartwright announced plans to leave, to be replaced by Carol Fairweather, who has been with the group for six years.
Overall the FTSE 100 fell 66.92 points to 6228.42, its lowest level since 23 January. Much of the decline followed a drop in the euro after Mario Draghi, president of the European Central Bank, said it would monitor the impact of the single currency's recent strength. He pointed to continuing economic weakness in the eurozone until later in 2013, which analysts said was slightly more pessimistic than previously. Comments from Bank of England governor-elect Mark Carney also contributed. Angus Campbell of Capital Spreads said:
The future governor of the Bank of England gave his testimony to MPs and said that further monetary stimulus will be required to get the economy off its knees. Just when investors had been building a positive economic outlook for the year ahead a dose of reality from central bankers reminds us all that we are going to need further assistance from them in the months, if not years ahead.
With riskier assets being shunned, banks were among the leading fallers.
In the wake of Royal Bank of Scotland's £390m libor penalty, Credit Suisse analysts repeated their underperform rating on the bank and helped push it 9.2p lower to 332.9p. They said there was increasing pressure for a radical rethink of the bank:
Despite the former global banking and markets division having significantly shrunk since 2008, this still has around £770bn of assets (including derivatives). We believe a more radical deleveraging will be necessary as further strategic and political pressure is mounting on the group's investment bank activities.
Lloyds Banking Group lost 0.23p to 51.89p while Barclays dropped 2.95p to 292.5p.
But Vodafone bucked the falling trend despite a disappointing trading update and a report a key supporter had sold its shares.
The telecoms group reported a 2.6% fall in revenues in the second quarter, slightly higher than the 2.4% decline expected by the market. European markets remained challenging, with the economic downturn exacerbated by the need to continue investing in its network to bring faster connection speeds to customers. UK revenues fell by 5.25% but in Italy the drop was 13.8% and in Spain, 11.3%. However the company - which recently bought Cable & Wireless Worldwide - confirmed its full year operating profit guidance. The City is expecting some corporate action revolving around its joint venture in the US, Verizon Wireless, where revenues grew by 8.7%. Expectations range from its partner buying out Vodafone's share, to a full takeover of the UK business.
But Neil Woodford's well regarded Invesco Perpetual has disposed of its shareholding in the company, citing weakness in its European business and concerns about dividend cover.
Even so, Vodafone finished 1.5p higher at 171.85p.
Elsewhere catering group Compass climbed 14p to 779.5p after it reported a 6% rise in first quarter revenues, with US and emerging markets helping to offset weak conditions in Europe. Investors shrugged off news that Sir Roy Gardner intended to step down as chairman in a year's time.
A couple of retailers which divide opinion were in the spotlight.
SuperGroup, up 96.5p to 730p, and Ocado, 11.1p higher at 115p, led the FTSE 250 risers after positive updates.
But analyst Philip Dorgan at Panmure Gordon repeated his sell recommendation on Ocado:
We think that the debate [on Ocado] now moves on to whether the company's assets are attractive to either M&S or Morrisons (both lacking and needing an online food offer) and, if so, at what price
We think that it is possible that Ocado could be acquired, but the price would need to be well below its current valuation. The company's updated net asset value is 39p and it is this that we would use as a starting point for its valuation. We therefore reiterate our sell recommendation and target price of 50p.
Buoyant summer holiday bookings helped lift Tui Travel by 2.7p to 306.3p and Thomas Cook 14p to 85.5p. Both tour operators said cash strapped Europeans were snapping up all-inclusive holidays, with Tui saying summer bookings were up 4% and Thomas Cook reporting "robust" sales at higher sale prices and improved margins.
Bank of America Merrill Lynch issued a buy note on Tui - where a recent approach from parent company Tui AG came to nothing - and said:
Having spent much of the last 3-5 years restructuring Tui is now firmly on the front foot strategically with both a content and distribution led strategy that is resonating with consumers and delivering improved operational performance.
But Simon French at Panmure Gordon was negative on Tui, saying the rating was too high:
The aborted bid approach from Tui AG highlighted that the parent company does not want to pay a premium for control of this minority. We therefore reiterate our sell recommendation and our 245p target price which implies around 19% potential downside.
A positive trading update from Ophir Energy was overshadowed by a £171m share sale.
Around 9% of the company - some 36m shares - have been sold by Credit Suisse on behalf of Och-Ziff Capital Management and Mittal Investments at 475p each. Both investors have agreed to a 90 day lock-up period relating to their remaining stakes - around another 9% - in the East Africa-focussed exploration group.
News of the share sale sent Ophir 44.5p lower to the placing price of 475p, an 8.5% decline which makes the company the biggest faller in the FTSE 250.
At the same time Ophir announced a successful appraisal well on the Mzia field in Tanzania, where it holds a 40% stake.
(c) 2013 Guardian Newspapers Limited.
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