Market Report: Bargain-hunters eyeing Misys send shares higher
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Saturday 20 August 2011
Bargain hunters zeroed in on Misys last night, with the financial software group's shares rallying after analysts flagged up the thin valuation.
The stock has had a rough couple weeks, falling from highs well above 400p in late June to about 235p earlier this week, after the US-based payment processor Fidelity National dropped plans to buy the group. With no deal – the transaction would have valued Misys at about $2.4bn (£1.5bn) – the market began chipping away at the gains inspired by the bid.
But the sell-off has gone too far, according to Peel Hunt's analyst Paul Morland, who told clients to pile in last night, helping Misys to rise by more than 6 per cent, or 14.3p, to 249p.
Despite the sharp share price falls, which leaves the stock trading at a discount to the sector, Mr Morland said: "We have observed no change in the outlook for the business, other than concerns that banks may reduce spending on software."
And as far as those worries were concerned, he pointed out that revenues in Misys's banking arm "held up well" during the credit crunch "thanks to around 50 per cent in maintenance sales". Moreover, the company has no exposure to the capital budgets of large banks and it draws limited revenues from the troubled countries on Europe's southern periphery.
Peel Hunt also highlighted the potential read-across from bid activity elsewhere in the sector, with HP paying a massive premium to buy FTSE 100-listed Autonomy.
Overall, market sentiment remained weak, with the FTSE 100 losing 51.47 points to 5,040.76, having fallen as far as 4,929.55 earlier in the session.
Yesterday's decline rounded off a volatile week, with London's benchmark losing about 5.3 per cent over the course of five sessions. The mid-caps were also lower last night, easing by 101.16 points to close at 9,759.06.
Looking ahead, Will Hedden, a sales trader at IG Index, warned that next week may see yet more ups and downs as markets eye any signs of weakness in key economies. "It's been a turbulent week for markets, and there's no reason to believe that we've seen the last of this," he said.
Autonomy was far and away the standout riser of the day. The software group soared by more than 71 per cent as investors digested the details of the recommend offer from Hewlett Packard. As Peel Hunt noted, the 2,550p per share bid was nothing if not generous. "Holders should quickly accept this truly golden offer," the broker advised, as Autonomy rose by 1,023p to close at 2,452p.
The deal generated much talk around the group's FTSE 100-listed peer ARM Holdings, the chip designer that has long been a favourite of speculators pegging their hopes on interest from Apple or Intel. The analysts at Numis did their bit to aid the share price rise, pointing that Arm may well end up going the way of Autonomy.
"The stock should continue to trade at high price to earnings multiples, or otherwise fall prey to another cash rich goliath the same way Autonomy has," the broker said, revising its view to "buy" and helping Arm's stock to rise by 11.3p to 490p "We believe the depressed share price following recent market turmoil represents a buying opportunity."
Elsewhere, growing concerns about global growth continued to drive gains in the gold price, which touched highs of around $1,878 per ounce.
The rise in gold prices in turn continued to drive interest around precious metals mining companies, with Randgold Resources one of the biggest beneficiaries. The Mexican silver miner Fresnillo was also strong last night, adding more than 7 per cent or 130p to 1,970p. African Barrick Gold, on the other hand, was marginally lower on the day, ending 1p behind at 535.5p
UK-focused banks remained under pressure yesterday. Concerns about the state of the eurozone, and its potential impact on the financial system, continued to dampen the mood. As a result, part-nationalised peers Lloyds and Royal Bank of Scotland fell by 1.4p to 28.38p and by 1.18p to 20.77p respectively. Rivals with a greater exposure to emerging markets fared better, with Standard Chartered, for example, closing a healthy 31p higher at 1,362.5p.
Further afield, Dixons Retail fell by 0.45p to 11.87p as UBS looked ahead to the high-street group's quarterly update in September, warning clients to brace themselves. On its estimates, the group's UK like-for-like sales are likely to be down by 12 per cent.
The builders' merchant and DIY retailer Travis Perkins suffered a negative end to the week, retreating by 19.5p to 723.5p, after the analysts at Goldman Sachs turned bearish.
"Our detailed analysis of UK GDP components suggests low volume growth, which we believe will result in continued price pressure and slower margin improvement," they said in note to clients, lowering their recommendation on the stock to "sell" from "neutral", with a revised 780p target price, compared to 1,117p previously.
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