London afternoon: Clinging on to gains

Date: Thursday 22 Jan 2009

With the US markets opening lower some of the steam has gone out of the rally in London.

Banks and resource stocks continue to lead the way although early gains have been trimmed. Royal Bank of Scotland and Lloyds Banking Group have got the bears on the run as they recover from their recent battering, but the wheels have come off the Barclays bandwagon after newspaper reports that a clause inserted during the Abu Dhabi Royal Family’s investment in Barclays last October has made it practically impossible for the government to take a meaningful stake in the bank.

The small print in the deal, in which Barclays raised £7.3 billion from Abu Dhabi and Qatar, means that if the bank raises fresh capital before the end of June, the Middle Eastern investors would receive a greater number of shares for their original investment without paying more, according to The Times.

Among resource stocks Xstrata, Antofagasta and Rio Tinto are the picks of a buoyant mining sector while Cairn Energy and BG Group lead oils higher.

Resurgent stock markets give a lift to fund manager Schroders and life assurance stocks.

Centrica’s British Gas said it will cut gas prices by 10% from 19 February. Over 7.5m homes are expected to see a reduction in prices. The group said the cut, which will save customers £84 on the average annual household gas bill, is the first standard gas tariff cut by a major energy supplier since 2007.

Supermarket Wm Morrison continued to trade well through the Christmas period as it saw like-for-like sales rise 8.2% in the six weeks to 4 January. Expectations were for an 8% increase in like-for-like sales. Despite marginally beating market expectations, the shares fell, as investors took heed of the company’s cautious outlook. “We remain cautious on the outlook for consumer spending and we expect the market to remain challenging,” the company added.

Telecoms giant BT is the worst performing blue-chip. It expects to take a one-off charge of about £340m following financial and contract reviews at BT Global Services (BTGS) and warned of more to come. It said there may be further “substantial” one-off charges in the third quarter results depending on the outcome of the ongoing reviews.

The London Stock Exchange has seen a drop in cash equities trading volumes and value since the start of 2009 and said market conditions remain “very difficult and uncertain”. Revenue in the three months to 31 December rose 4% to £171m, but was down 3% at constant currency.

Enterprise Inns soars despite a downbeat trading statement covering the first 16 weeks of the financial year, in which overall net income per pub was down by around 8% on a like-for-like basis, in line with its expectations of a “particularly difficult” first half.

Investors were encouraged by Enterprise’s progress on the company’s asset disposals programme and a confident tone regarding its debt position. “With a group loan to value ratio of around 63% and fixed charge cover at two times, the balance sheet and cash flows remain robust. Debt ratios are broadly in line with those reported as at the end of September 2008 and there is no requirement for refinancing before May 2011, when our existing 5 year bank facility of £1 billion is due for renewal,” the company said. Fellow pub groups Punch Taverns and Mitchells & Butlers are also wanted after Enterprise Inns’ statement.

Search software specialist Autonomy’s acquisition of US content management software firm Interwoven for around $775m (£559m) has received the thumbs-up from the market. The consideration will be partly funded by a £220m placing.

Budget airline easyJet rallied after reporting first quarter revenue growth ahead of expectations. The carrier also thinks the first half will beat previous guidance, although the outlook for the summer remains uncertain.

Department store group Debenhams has enjoyed a bounce from an upgrade by JP Morgan, which now has a neutral rating on the stock, having previously recommended clients be underweight in the stock.

Home maintenance specialist Homeserve said its business continues to perform well and it expects to deliver another year of strong growth. In the UK Membership business, new policy sales have continued to perform well and the group said it remains on target to deliver at least the same level of gross new policy sales as last year.

Wealth management group St James's Place posted a 2.3% drop in 2008 sales but is confident it will outperform in 2009 despite challenging market conditions.

Property group Great Portland Estates revealed a 12.4% decline in the value of its portfolio during the third quarter and expects 2009 to be challenging.

Fund manager Aberdeen Asset Management said assets under management (AUM) were little changed by the end of the year as the effects of markets, performance and currency movements broadly matched the Group's new business flows.

Life sciences company BTG said it has made good progress during the second half of the year and trading is in line with expectations.

UK Coal said full year production and sales are expected to be flat at 7.9m tonnes, broadly in line with forecasts of around 8m tonnes.

First quarter profitability has “significantly” exceeded expectations at qualifications and assessment firm Education Development, while like for like revenue is well up on the year before.

Satnav group Trafficmaster finds itself north of last night’s closing price after positive reaction to a trading update. The group said trading has been in line with expectations for the year to 31 December 2008 after strong sales in the third quarter.

Shares in Printing.com dropped after the franchised printing retail outlet firm warned full year results are likely to be slightly below market forecasts.

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