Market Report: Carnival navigates its way through choppy FTSE 100

Carnival sailed to the top of the FTSE 100 last night on hopes of a smooth passage for the cruise operator despite the choppy macroeconomic waters.

The optimism was the result of some bullish commentary from Jefferies, whose analysts argued that the combination of weak valuation metrics, lower capital expenditure requirements, proven cost control and continued demand from consumers will keep Carnival on a firm footing.

"Vacations remain high on consumers' agendas, and the all-inclusive value-for -money cruise proposition is becoming increasingly popular," they said, noting that cruises were 20 to 30 per cent cheaper than "the equivalent land-based vacation".

Jefferies also highlighted what it viewed as the cruise industry's "unique business model", with the top two operators - Carnival and Royal Caribbean - boasting a combined market share of around 75 per cent. "Barriers to entry are high, in terms of capital investment and time to market. Cruises are priced so ships always sail 100 per cent full, [therefore] maximising onboard spend and economies of scale. The companies pay little or no corporation tax, resulting in attractive cashflows... [and] ageing demographics are driving demand in a lowly penetrated industry," the broker explained, helping Carnival outperform the wider market, rallying by around 1.7 per cent or 34p to 2,086p

Overall, equities slipped deeper into the red, with the benchmark FTSE 100 index shedding another 1.1 per cent or 60.2 points to 5,362.94 and the mid-cap FTSE 250 index losing 105.92 points to 10,044.36.

Yet again, it was Europe that did it. A whole host of issues kept traders occupied, including volatile sovereign bond yields, speculation that the European Central Bank may lend money to the International Monetary Fund to give it extra firepower, and signs of disagreement between the British and German governments over how to solve the debt crisis.

"It's the same old story with worries over the eurozone, meaning that the odd brief rally ends up being unsupported and shares turn lower once again," Ben Critchley, a sales trader at the City spread betting firm IG Index, said.

Mining shares remained on the back foot as the European debt crisis continued to cloud the demand outlook for key industrial metals. This was despite some mid-afternoon firmness in the copper price, something that was the result of weakness in the US dollar. But equities were pressured, with the FTSE 350 mining index falling by a further 1.6 per cent.

Antofagasta was among the losers, retreating by 27p to 1,076p, while BHP Billiton fell by 36.5p to 1,870p and Anglo American closed at 2,359p, down 35p. Vedanta Resources, which took the FTSE 100 wooden spoon on Thursday, was only slightly lower, down 4p to 1,010p. The platinum miner Lonmin was unchanged at 1,021p last night.

The luxury goods group Burberry continued to ease, down 25p at 1,244p, with the recent profiting taking trend persisting despite some words of support from Goldman Sachs. "We believe that Burberry's brand positioning, pricing power and margin accretion opportunity from a changing geographical, channel and product mix is not fully reflected in the current valuation," the broker said, repeating its "conviction buy" recommendation, albeit with a lower 2,137p target price, compared to 2,203.6p previously.

Further afield, the banknote printer De La Rue, which has had a testing year, was slightly behind at 880.5p, down 4p, despite speculation that France's Oberthur could return with another bid for the business. UBS analysts said Oberthur, which abandoned plans to take over De La Rue earlier this year, is free to renew its interest from 1 December – and they reckon it "will still be interested", although it will "have to pay up" to succeed.

"Whilst Oberthur has not completed the divestment of its card systems business, a sale has been agreed subject to competition reviews," UBS said, raising its target price for De La Rue to 950p from 840p. "With around €1bn from the sale, Oberthur looks a much more serious bidder this time around than it did at the end of last year [the time of its initial bid] when leverage on the deal would have been way too high."

Elsewhere, the military equipment manufacturer Chemring was under fire yesterday, slumping by nearly 13 per cent or 62.4 p to 421.6p and taking the mid-cap wooden spoon after spooking investors with its pre-close update.

The weakness came after Chemring said full year revenues would fall short of its expectations, as it was hit by contract delays. In response, Finncap analysts switched their stance to "hold" from "buy", noting that while the stock was trading on very low multiples, "with sentiment shaken further we feel the shares will struggle to perform for a while".

FTSE 100 Risers

British Sky Broadcasting 725p (up 4p, 0.6 per cent)

Pay TV group says it intends to appoint Aberdeen Asset Management's Martin Gilbert and Lazard's Matthieu Pigasse to its board as independent non-executives.

National Grid 642p (up 0.5p, 0.1 per cent)

Power distributor stands firm as its defensive characteristics offset the impact of S&P Equity Research's decision to lower its target price for the stock to 630p from 647p.

FTSE 100 Fallers

Capita 640p (down 27.5p, 4.1 per cent)

Outsourcing firm tumbles after disappointing investors with its interim management statement; Investec lowers its target price for the stock to 630p from 725p.

Centrica 288.9p (down 5.7p, 1.9 per cent)

British Gas owner pressured as Goldman Sachs lowers its target price for the stock to 458p from 462p; HSBC cuts its target price to 340p from 370p.

FTSE 250 Risers

Premier Foods 5.2p (up 0.691p, 15.3 per cent)

Food producer bounces back from recent weakness to claim the FTSE 250 crown; group sales director Ian Deste buys 186,746 shares at 5.2p apiece.

Pace 46.7p (up 1.15p, 2.5 per cent)

TV decoder manufacturer firms up as bargain hunters move in to capitalise on Thursday's sharp gains; JP Morgan Cazenove cuts its target price to 110p from 131p.

FTSE 250 Fallers

Cable & Wireless Worldwide 19.86p (down 0.64p, 3.1 per cent)

Telecoms group loses ground as the analysts at JP Morgan Cazenove revise their target price for its shares to 24p, down from 48p.

Micro Focus International 360p (down 9.3p, 2.5 per cent)

IT group retreats despite support from Goldman Sachs, which sticks with its "neutral" stance, but ups its target price to 440p from 400p.