Market Report: Biomass subsidies give Drax new burst of energy
Friday 21 October 2011
Analysts may have seen new proposed subsidies for biomass announced yesterday as merely a "mild positive" for Drax, but investors clearly felt differently as the power station operator shot up more than 10 per cent. The group closed at the top of the mid-tier index leaderboard, even though its chief executive attacked the measures for not going far enough.
If introduced, the plans would represent a significant increase in support for the use of eco-friendly biomass to generate energy, which Drax plans to invest heavily in. Yet this did not stop the company's boss Dorothy Thompson calling for a further "moderate uplift to maximise our potential for producing this low cost renewable electricity".
Meanwhile, analysts from Deutsche Bank were rather underwhelmed, saying the announcement was just "a mild positive" and a "starting point" for Drax. Nonetheless investors, who have been scared off recently by fears over the future viability of biomass, disagreed and pushed the company up 49.2p to 529p.
As Sunday's key EU summit drew closer, the appearance of further disagreements between leaders as they attempt to solve the eurozone debt crisis pushed the FTSE 100 back 65.81 points to 5,384.68. With talks between Merkel and Sarkozy stalling and signs of conflict emerging between the European Union and the International Monetary Fund over the next batch of aid for Greece, Lloyds dropped 1.5p to 31.65p while Royal Bank of Scotland was pegged back 0.84p to 23.63p.
The heavyweight diggers were also dragging the top-tier index down, with Kazakhmys and Antofagasta retreating 44p to 830.5p and 37p to 1,039p respectively. Also behind was ITV, which slipped 2.85p to 58.75p as traders blamed a tough outlook for advertising following reports claiming the X Factor broadcaster could be hit by a revenue slowdown over the next two months.
Those unhappy about G4S's announcement on Monday that it is buying Danish group ISS in a deal worth £5.2bn were given some hope after major shareholder Parvus Asset Management said it would vote against the acquisition. In response, the security services company – which has lost nearly 15 per cent this week – was lifted 7.4p to 241p despite Collins Stewart downgrading its rating to "sell" from "hold".
Unilever managed to outperform most of its fellow blue-chip stocks, with the PG Tips owner easing back 6p to 2,069p. The consumer goods behemoth was helped by positive results from Swiss chocolate maker Nestle, which increased its sales forecast for the year.
The prospect of a 50 per cent profits increase persuaded some to take a flutter on Betfair, as the online gambling group was bumped up 18.5p to 745p on the FTSE 250. Numis Securities' Ivor Jones suggested its new fixed odds sportsbook, which will be introduced from next April, has the potential to provide just such a boost, claiming its "potentially game changing impact... may have been overlooked."
After Home Retail revealed a 70 per cent drop in its first-half profits on Wednesday, analysts were scrambling to stick the boot into the Argos owner. Among them was Liberum Capital's Simon Irwin, who played down hopes the group's fall to a record low could prompt a bidder to appear.
Despite constant takeover rumours, with the latest wild speculation claiming an approach may come from Amazon, Mr Irwin said Home Retail held "little attraction to potential buyers" and that there were "limited synergies with mass merchants, particularly in apparel".
In the end, the company still managed to bounce 3.92 per cent, although it remained nearly 14 per cent lower than before its results.
It was a cheerful day for the retailers in general after the latest data from the ONS showed a surprise 0.6 per cent rise in sales. It certainly helped Marks & Spencer, which climbed 3.7p to 332.6p, while Next ticked up 74p to 2,614p.
Elsewhere, a profits warning from set-top box maker Pace – which it blamed on flooding suffered by its supplier Western Digital in Thailand – saw it plummet 13.04 per cent to 80p and finish at the foot of the mid-tier index.
The announcement of a major natural gas find off the coast of Mozambique by Italian oil giant Eni saw Cove Energy spurt up 7p, or 8.64 per cent, to 88p. The AIM-listed explorer has had its own recent success in the area, and RBS said the latest find "would add a significant critical mass of resources to support a large scale LNG development in the region".
The technology group Cap-XX enjoyed a massive advance of 67.57 per cent to 15.5p, prompted by its Japanese partner Murata starting mass production on their new "supercapacitor" device, which delivers quick bursts of power in products such as smartphones.
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