Market Report: Centrica slides on uncertainty over outlook

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The Independent Online
Morgan Stanley yesterday called time on Centrica's impressive share price rise over the past 12 months, warning its clients that the outlook for the utility has become more uncertain of late. The news sent investors rushing to lock in gains from Centrica, which is up by a third over the past 12 months, and left the stock down 6.75p on the day at 238.25p.

Morgan Stanley yesterday called time on Centrica's impressive share price rise over the past 12 months, warning its clients that the outlook for the utility has become more uncertain of late. The news sent investors rushing to lock in gains from Centrica, which is up by a third over the past 12 months, and left the stock down 6.75p on the day at 238.25p.

"We believe that our revised commodity price outlook and the recent movements in wholesale UK gas prices raise the risk profile associated with Centrica earnings forecasts," the broker said as it downgraded the stock to "equal weight" from "overweight". It added: "We are hopeful that Centrica can meet our revised forecasts but are less confident than in the past."

Morgan Stanley also alerted investors to the difficulties associated with trying to gauge the likely success of Centrica's reinvestment programme, which will see the utility plough back £5bn into the business over the next four years, mainly in upstream gas and power projects.

In the banking sector, Lloyds TSB lost 3.25p to 437p after SG Securities slashed its rating to an outright "sell" from "hold" and set a price target of just 400p. The French broker noted that the bank's strategy for growth was "more dependent on the UK consumer than any of the other commercial banks". SG fears this is not a good thing for Lloyds, given its prediction that British consumers "will struggle more than most" in the coming years.

Semiconductor stocks listed in London were hit by weaker-than-expected third-quarter figures from Micronas Semiconductor. The Swiss group complained that orders had remained weak through September and warned that it did not expect a pick-up before the end of the fourth quarter. Hence CSR dropped 1.75p to 355.25p, Imagination Technologies fell 3p to 81p and ARM Holdings retreated 2p to 85p.

The FTSE 100 fell 5 points to 4,629 after a poor start to trading on Wall Street. US stocks were hit by disappointing earnings from General Motors and lacklustre economic data.

Michael Page, the recruitment giant, ended the day as one of the worst performers in the FTSE 250 index, down 8p at 169p, after Citigroup cut back its rating to "hold" from "buy". The US broker said it was sceptical that Michael Page could continue to go on beating expectations in the coming months.

At the small cap end of the market, MyTravel dropped 0.15p to 4.85p as analysts suggested that shares in the travel group were worth less than 2p under the terms of the company's restructuring. The deal, a debt-for-equity swap, will see MyTravel's creditors take control of the group, leaving its present shareholders with just a 4 per cent share in the restructured company.

There was another day of brisk trade in ML Laboratories, steady at 18.75p. Although the fund manager Hermes has been selling down its stake, word has it that David Kirch, a Jersey-based entrepreneur, has been adding to his holding. He is believed to control a little less than 5 per cent now. Ridge Mining was 8p better at 69p after Donald McAlister, the finance director, picked up 10,000 shares at 60p each.

Elsewhere, Cundill Investment Research, a Canadian value fund, declared a 4 per cent holding in Highbury House Communications, down 1p to 11.75p. Shares in the publisher are trading just above an all time low of 8.5p after a massive profits warning last month. Meanwhile, Jack Petchey, the veteran investor, continued to add to his holding in Stylo, which ended unchanged at 59.5p. He bought an extra 150,000 shares leaving him with a total holding of 11.8 million or 28 per cent.

Lonrho Africa, once the fiefdom of the tycoon Tiny Rowland, jumped 1.25p to 13.75p prompting suggestions that corporate action may soon be on the way. The group has in effect become a cash shell after a sell-off of its various business over the past three years which included a series of hotels across Africa, various motor dealerships and even pig farms. Some form of corporate action at Lonrho Africa would certainly not be a surprise, given its shareholder register. JO Hambro, the activist investment fund, holds a 25 per cent stake while Peter Gyllenhammar, the Swedish value investor, has built up a 12 per cent holding.

Finally, Falkland Oil & Gas's float was certainly not the success some thought it would be. On Wednesday dealing rooms were awash with talk that the stock would soar on its maiden session, and possibly double. As it turned out, the company listed at 40p and closed at 48.5p. RAB Capital, one of Falkland's biggest shareholders, enjoyed a strong run ahead of the float on hopes that the AIM-listed hedge fund would make a killing on its stake. It dropped 6p to 37.5p in disappointment.

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