FTSE buoyed by latest US debt talks, as ITV benefits from England team's success
Growing talk of a possible deal to avert US debt and budget crisis gives investors hope
The US debt ceiling continued to dominate markets, with investors growing increasingly hopeful the political dispute in the country could be resolved before the 17 October deadline.
As is often the case, sport provided a distraction from global events, in particular the English football team's successful victory over Poland which saw them booking their tickets for the World Cup finals in Brazil.
One business to benefit was ITV, up 3.1p to 190.1p as analysts reminded investors it had the rights to broadcast the tournament. Ian Whittaker at Liberum Capital issued a buy note, saying:
England's automatic progression to the 2014 World Cup secured last night a plus for ITV (which will show the games). We forecast 5.4% ITV television advertising revenue growth for 2014.
But the prospect of selling more England shirts failed to give a lift to Sports Direct International, down 1.5p at 691.5p, but it is bound to benefit from the team's success. Analyst Nick Bubb said:
The share that Sports Direct has of the England replica football shirt market doesn't really bear thinking about, but no doubt Mike Ashley will be hard at work on plans to exploit the fact that the World Cup in Brazil next summer will feature mighty England.
Overall the FTSE 100 finished 22.48 points better at 6571.59, with Wall Street recovering from Tuesday's losses to stand nearly 200 points higher as London closed. After days of will-they-won't-they find the political will in the US to avert what Warren Buffett called a weapon of mass destruction - not raising the US debt ceiling - there were signs of possible progress. The US senate was said to be finalising a cross-party bill to raise the debt limit and reopen government services, but as usual there were conflicting reports on what was actually happening as UK traders closed up for the evening. Gavin Nolan at Markit said:
Markets grew in confidence this afternoon amid rumours that Congress is very close to agreeing a deal to temporarily lift the debt ceiling.
The latest reports suggest that the Senate proposal ? which is thought to be on the verge of completion ? could be sent to the House for approval first. This could speed up the legislative process by removing procedural hurdles in the Senate.
However, it is also a risky strategy, as it is by no means certain that House Leader John Boehner can deliver a majority.
Speaking of Buffett, IMI added 29p to �15.28 after the engineering company sold its drinks dispensing and merchandising businesses for �690m to Marmon Group, owned by the US investment guru's Berkshire Hathaway. The operations account for around 14% of IMI's revenues.
IMI plans to return �620m to shareholders and put the rest into its pension scheme. The company also brought forward its third quarter update, showing revenues are up 3% year-on-year but 1% lower year-to-date as expected. Numis said:
We view this [disposal] as a very progressive strategic step in focusing the group into a higher margin (around 20%) valves business. A new chief executive with a proven track record in this space and acquisitions combined with a strong balance sheet (around �100m net debt) adds spice. At 17 times 2014 earnings it is not cheap but a discount to Spirax (19 times) and Rotork (21 times) highlights value.
Elsewhere Burberry was in focus again after Tuesday's surprise news about the proposed departure of chief executive Angela Ahrendts for Apple. After falling as low as �14.24, Burberry recovered to close unchanged at �14.64.
Capita slipped another 7p to 963.5p after this week's news of an Office of Fair Trading study into government IT contracts. Capita is also one of those companies where Invesco Perpetual holds a large stake, and with news of fund manager Neil Woodford's departure, investors were concerned about whether Invesco would keep all of his investments. Rentokil Initial, another of Invesco's shareholdings, dipped 0.1p to 107.8p.
Meanwhile as Royal Mail workers voted to strike, the newly privatised slipped 14p to 475p.
But investment manager Hargreaves Lansdown - which picked up new clients in the Royal Mail flotation - added another 50p to �10.90 in the wake of Tuesday's upbeat trading statement. Analysts at Jefferies said:
Hargreaves Lansdown's rating may seem high but it is not expensive. [It] still has plenty of opportunity to increase its market share in the UK. We have trimmed our forecasts but maintain our buy rating and increase our price target to �11.50 [from �10.50].
Elsewhere Arm added 12p to �10.30 as Intel announced its very fast low power Broadwell chip - a competitor to the UK chipmaker - was delayed again. Meanwhile Credit Suisse issued a buy note on Arm:
In our view Arm is set to see earnings compound annual growth rates of 32% over 2012- 2015 benefiting from robust volume growth in smartphones/tablets and rising levels of Arm content within these devices.
Lower down the market software group Anite lost almost a third of its value after it issued a profit warning, which it blamed on changes in the mobile phone market.
The company said mergers and reorganisations at major handset and chipset makers - Microsoft/Nokia, Blackberry and so on - had led to uncertainty and contracts slipping to later in the financial year. These delays hit its handset testing business and were expected to knock 25% off its first half revenues. It said it expected second half revenues in the handset testing business to be broadly in line with a year earlier.
But a subsequent shortfall in first half profits would not be fully recovered in the second six months.
The news sent Anite down 35.75p to 76.75p and also hit telecoms testing company Spirent Communications, 2.9p lower at 124.3p.
Finally online gaming group 888 added 0.6p to 164.6p after it said revenues rose 2% to $94m in the third quarter and it expected a boost from the US next year as a number of states eased their bans on internet gambling. Numis said:
The regulator in New Jersey has said that the online gambling market will open in November as planned. 888 appears to be as ready as possible to bring Caesars, Wynn and its own brands to that market. A successful launch will provide further encouragement that, if the all-important California online poker market were to open next year, 888 would be able to exploit the opportunity. Growth in the US is coming along just in time to offset slowing growth in some of the current core products.
We are forecasting modest growth for the core business in 2014 and, in light of the slow revenue growth ex-casino seen in the third quarter of 2013, this seems reasonable. However, our model excludes the business in the US. When 888 next reports we may have enough information about the first few weeks of trading in New Jersey to start to make forecasts.
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