Market report: Capital fears weigh on L&G ahead of results

Legal & General was under pressure last night, with nervous investors banking profits ahead of the company's full-year figures, which are due this morning.

The life insurer's shares, which have rallied strongly in recent weeks, tumbled to 42.8p, down 4.6 per cent or 2.1p, as the market awaited details on the strength of the company's capital base. ING, which reduced its target price for L&G to 34p from 77p, aided the decline, warning investors about the possible impact of weaker equity markets and the deteriorating outlook for UK life sales.

"New business sales [this year] will be much tougher for Legal & General, we believe, than its UK peer group," the broker said. "On top of this, the company, on our work, struggles to generate real cash. All of this means that the company appears to be more fully valued at current levels than its UK competitors."

Weighing in on the results, ING reiterated a view that has been aired in the market in recent sessions, namely that the company should cut its dividend to ease the strain on the poor cash generation that afflicts the business. Yet, despite its view, the broker said L&G may stick with the payout in an attempt to divert the market's gaze from its "singularly challenging situation".

This last point was questioned by some in the market, who highlighted the example of Aviva, which endured a brutal sell-off after opting to maintain its payout. Cutting the dividend may be a more effective way of soothing frayed nerves, some said.

"A scrip alternative could be introduced to get around all this, and we note that the company does not currently have a scrip alternative to the cash," ING added.

Overall, profit-taking was also in evidence in the wider market, with the FTSE 100 retreating 41.3 points to 3,911.4 as investors moved to secure gains from Monday's session.

The heavily weighted mining sector proved the biggest drag, with the copper producers Antofagasta, down 8 per cent or 45p at 516p, and Kazakhmys, down more than 6 per cent or 26.5p at 375.75p, buckling under as prices for the industrial metal eased off the previous session's highs.

On the upside, a clutch of consumer stocks fared well, with Diageo rising to 767.5p, up 15p, after S&P Equity Research moved its recommendation to "hold" from "sell" and J Sainsbury climbing to 330.75p, up 10.2p, ahead of a trading update, which is due this morning.

Reed Elsevier was also strong, gaining 15p to 518.5p after the Royal Bank of Scotland upgraded the stock to "buy", saying that, despite the depressed valuation, the publishing group's current "asset portfolio is of a higher quality than ever".

The broker reiterated its "hold" stance on Thomson Reuters, which was up 14p at 1,587p.

Elsewhere, the FTSE 250 was 12.3 points firmer at 6403.5. UBS boosted Northern Foods, the food producer, which swung to 44p, up 11.3 per cent or 4.5p, after the broker upped its stance to "buy".

Anticipating another "steady as she goes update" when the company posts a fourth-quarter trading statement tomorrow, UBS commended, among other things, the food producer's relatively strong balance sheet and the identified cost reduction opportunities.

Regus, up 2.75p at 69p, was similarly supported by some benign broker comment. Goldman Sachs weighed in, moving its target for the stock to 80p from 66p on account of the office space provider's strong cash flow.

There was little love for Greene King, on the other hand, after Altium moved the stock – which closed 3.6 per cent or 16.5p lighter at 441.25p – to "hold" from "buy" in a new sector review.

DSG International was also on the back foot, easing to 19.5p, down 0.5p after Morgan Stanley highlighted the long-term competitive disadvantage posed by the fact that the company is tied to store leases where – owing to the possibility of "upward only" rent review clauses – rent may not come down in line with the market. This could potentially give Carphone Warehouse, which is planning to expand via its Best Buy joint venture, the upper hand as it secures cheaper selling space in the years ahead.

"As yet, it has opened no stores and (as far as we are aware) has not even committed to any leases," Morgan Stanley said, highlighting the fact that when the joint venture does begin to roll out into the market, it will be mostly unencumbered by legacy space. At the close, Carphone Warehouse was 2.25p stronger at 121.25p.

Among smaller companies, Innovation, the specialist outsourcer, advanced to 7.41p, up more than 72 per cent or 3.1p after revealing an indicative 15p-a-share approach from the private equity firm Carlyle.

The proposal, which is currently at a very preliminary stage, follows the company's announcement late last year that it had received, and decided not to pursue, a number of possible offers, including one regarding a potential stake investment, in the range of 15p to 20p a share.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Account Manager / Membership Manager

£35 - 38k + Benefits & Bonus: Guru Careers: We are seeking an Account Manager ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

Guru Careers: Associate Director

£50 - 80k: Guru Careers: We are seeking an Associate Director for the Markets ...

Guru Careers: Associate Director / Director of Sound Practices

£60 - 100k: Guru Careers: Our client is looking for an Associate Director of S...

Day In a Page

Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

Uganda's giants are flourishing once again

After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

After 350 years, the riddle of Britain's exploding fleet is finally solved

Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
Airbus has patented a jet that could fly from London to New York in one hour

Airbus has patented a jet that could fly from London to New York in one hour

The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
10 best sun creams for kids

10 best sun creams for kids

Protect delicate and sensitive skin with products specially formulated for little ones
Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

Tate Sensorium

New exhibition at Tate Britain invites art lovers to taste, smell and hear art
Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

Nice guy Finn is making up for lost time – and quickly

He was man-of-the-match in the third Test following his recall to the England side
Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

Remember Ashton Agar?

The No 11 that nearly toppled England
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks