Market Report: Centrica on the gas as investors eye cash return

With turmoil in the market forcing investors to cower behind the cover of the defensive stocks, Centrica was among the few risers yesterday as shareholders in the owner of British Gas were told they could be in line for a cash return.

Despite the top-tier index finishing at its lowest level of 2011 so far, the energy supplier rose by 3.4p to 305.3p after Goldman Sachs reiterated its position on the broker's list of "conviction buy" stocks.

Last week, alongside its first-half results, the company said it was slowing down its investment in nuclear energy ahead of a government report on its safety. This came after Centrica last year shelved plans to build a new gas-storage site in East Yorkshire, citing regulatory concerns and shrinking economic benefits.

"Over the next six to 12 months, if there is still no clarity on the [nuclear and gas-storage] projects and no progress on further opportunities in North America, we think Centrica might consider returning cash," said Goldman Sachs's Andrew Mead.

The analyst was full of praise for the group's balance sheet, claiming it would still "generate free cash flow even with eventual spending on new nuclear and gas-storage projects". In addition, he said that "strong upstream asset performance and exposure to high commodity prices should offset any economic headwinds facing some of the customer businesses of British Gas."

Centrica ended up as one of just 11 stocks ahead as the FTSE 100 was knocked back 133.88 points to 5,584.51, its lowest level since November 2010. The top-tier index has now lost nearly 300 points in just four sessions, with poor economic data from both China and the US prompting falls in a number of commodity stocks. As a result, Glencore took the wooden spoon after dipping 32.1p to 426.35p while a fall in the price of the black stuff helped Tullow Oil to 69p lower to 1,146p.

Cairn Energy – which has rather a lot riding on its controversial exploration programme off the shore of Greenland after agreeing to sell a large stake in its Indian operations – fell 17.9p to 334.8p as it failed to find oil in its LF7-1 well in the region. The explorer refused to be downbeat, however, saying it had seen indications of oil-prone rocks, but it was not enough to prevent Evolution Securities keeping its "reduce" recommendation.

With the state of the eurozone also weighing on investors, Lloyds Banking Group and Royal Bank of Scotland slipped back 0.99p to 38.96 and 1.16p to 32.23p respectively. Meanwhile Standard Chartered eased down 9p to 1,545p, despite posting record profits for the first half of the year.

Next narrowly missed out on finishing ahead, edging down 4p to 2,358p after releasing strong first-half figures. The retailer's confident proclamation that the cost pressures that have hit the sector should weaken next year did help Marks & Spencer, and the high-street institution was lifted 3.6p to 339.2p.

Down on the FTSE 250, Halfords was driven up 6.1p to 310.1, ending a seven-day losing streak after Oriel Securities changed its rating to "hold" from "reduce". The broker's analysts were hardly gushing in their praise, however, saying the bike retailer is "still far from being one of our favourites", but they did concede its recent fall meant "the shares are discounting enough bad news ahead".

Given that he has presided over three profit warnings in a year, it was not too surprising that the resignation of Manny Fontenla-Novoa as Thomas Cook's chief executive saw the troubled tour operator charge up in early trading. Yet by the bell, the group – which also announced its operating profit for the third quarter had fallen by over 20 per cent – was behind, shifting down 1.3p to 59.5p.

Micro Focus managed to outperform the mid-tier index, declining just 2p to 273p after Panmure Gordon's George O'Connor reiterated his "buy" recommendation. The analyst said he expected the software group to use the release of its first-quarter numbers later in the month to confirm that takeover talks are still continuing, although its share price has dropped by a quarter since announcing in April that it had received an approach.

Investors are also still waiting for an update on ongoing bid discussions from its peer Misys, which was pegged back 22.9p to 358.1p by Royal Bank of Scotland cutting its rating to "hold" as the broker attacked its full-year results last month for being "somewhat uninspiring".

The news it has been approached by an unnamed company prompted Evolution Group to power up 6.25p to 79.75p on the small-cap index, although the stockbroker did warn it was "far from certain" that an offer will be made.

Meanwhile, on the Alternative Investment Market Datong shed a fifth of its share price, moving 8.5p to 32.5p, as the tracking-systems provider issued a profits warning, blaming poor trading in Europe.

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