Market Report: A parting of the ways as Spirit makes its debut
Tuesday 02 August 2011
With analysts arguing over whether the demerger is a cocktail for disaster or a plan to raise their glasses to, Punch Taverns embarked on a new era yesterday after the pubs group completed its split.
As Spirit, consisting of the com- pany's managed pubs as well as over 500 of its more successful leased sites, made its debut on the market, Punch – which was left with the rest of the estate and, crucially, a major proportion of the debt – continued to trade on the mid-tier index.
Shore Capital toasted the move by giving Spirit a "buy" recommendation and a 80p price target. "Free of the heavily indebted tenanted pub business, we believe that Spirit's management will be free to focus on completing the turnaround of a business which has underperformed its peers sharply over the prior four years," said the broker's analysts, who added that if they "are unable to complete the turnaround strategy we believe that someone else will".
Morgan Stanley's Jamie Rollo was much more cautious, however, awarding Spirit an "underweight" rating. The analyst warned of "major risks" around the group, including the "structural reasons for [the] operating gap" between it and Mitchells & Butler, which was 5.4p higher at 269.1p.
Mr Rollo added that its share price seemed to be "already pricing in a strong recovery", while there were also "obstacles to consolidation". In the analyst's worst-case scenario, he calculated it could be worth as little as 10p a pop – a price, he said, that was "very low but justifiable".
Nonetheless, investors appeared to cautiously welcome the spin-off. By the bell, Spirit was at 55p while Punch closed at 13p – when put together, more than Punch's closing price on Friday before the split of 63.55p.
Despite fears it will not prevent the United States' credit rating from being downgraded, the deal on the country's debt ceiling seemed initially to be enough to prompt a rally as the FTSE 100 moved as high as 5,913.46 points. Yet poor manufacturing data from across the Atlantic (and at home too) swiftly wiped out any gains, and the blue-chip index finished 40.76 points lower at 5,774.43.
HSBC was among the limited number of blue-chip risers as the bank started the UK sector's results season by beating forecasts with pre-tax profits for the first half of the year of $11.5bn. Hargreaves Landsdown's Richard Hunter said the update "set the bar high for those that follow", and the group ended up advancing 13p to close at 607.5p.
However, HSBC's upbeat update was not enough to convince investors that its peers would follow suit. Lloyds Banking Group, which releases its interim results tomorrow, was pegged back 2.16p to 41.19p, while Royal Bank of Scotland dropped 1.54p to 34.15p ahead of its numbers on Thursday.
BAE Systems was also deep in the red, retreating 9p to 295p as JP Morgan Cazenove cut its target price to 329p from 348p. Commenting on last week's interim figures from the defence giant, the broker said that although there was a number of positives, the pressures on military budgets meant "the outlook for growth remains highly uncertain".
Another near the back of the grid was BSkyB, 16.5p behind at 695.5p, despite its deal to share coverage of Formula 1 with the BBC getting the thumbs up from Royal Bank of Scotland. "Given the average F1 audience on the BBC is three times the average Premier League audience on Sky, and given F1 attracts a slightly different demographic, Sky's subscriber growth should benefit," said the broker, which reiterated its "buy" recommendation.
Meanwhile, the top-tier index's gold medal position was claimed by Intertek after it shifted up 75p to 1,990p. The testing company saw its profits for the first six months rise nearly 15 per cent, which it put down to strong performances from itselectrical, commodities and commercial divisions.
Down on the FTSE 250, Laird lost nearly 15 per cent of its share price after the electronics company's takeover hopes short-circuited. Its US peer Cooper Industries said it was refusing to offer 220p a share, as had been demanded, and was therefore giving up, causing Laird to plummet 27.9p to 159.8p.
It was yet another day on the slide for Ocado, as the online grocer declined for the seventh straight session. Jumping down 11.7p to 158.6p, the group is currently below last July's float price of 180p, and it has shed almost 45 per cent since February.
A victory in a contract dispute again Vivergo Fuels – a consortium which includes BP, down 3p to 458p – meant Redhall surged forwards 12.5p to 90.5p on the Alternative Investment Market, a move of more than 16 per cent for the support services company.
Elsewhere in the small caps, Caretech fell 0.25p to 128.12 despite reheated takeover speculation claiming that the care home company could be attracting potential suitors.
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