Market Report: GKN hit as car sales on skids across EU

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The Independent Online

Europe has put the brakes on new car buying and Worcestershire-based engineer GKN's shares have been caught up in the crash. European car sales growth reversed in Agust, the biggest fall in the past six months according to the European Automobile Manufacturers' Association. Registrations fell 8.5 per cent to 722,483 vehicles in August from 789,458 a year earlier. In the year to date sales have fallen by 6.6 per cent to 8.59 million cars.

Punters didn't like the news and drove out of shares in the vehicle to aircraft engineer GKN. GKN, which makes car parts, including electro-magnetic brakes, couplings, clutches and drive shafts, has around 30 per cent of its overall business in Europe.

Although France and Italian car sales were poor, growth was clocked up in Spain where sales rose 3.4 per cent and the UK where they drove up 0.1 per cent.

GKN's car business has been boosted by strong global luxury car sales in the past. But yesterday its shares propelled toward the bottom of the leaderboard where it closed down 8.6p, to 228.3p.

On a lacklustre day in the City, traders were rehashing rumours that a bidder is looking at water company United Utilities. Last month there was vague speculation that a bid could come in from one of a handful of potential interested parties including Canadian Ontario Teachers' Pension Plan, Chinese Investment Corporation and Qatari and Abu Dhabi sovereign wealth funds. At the time the share price was pumped up to a four-year high of 816p a share. This time the – highly speculative buzz – is a 950p-a-share bid from one of the Middle Eastern sovereign wealth funds. Shares in the group, that supplies water to more than three million homes, gushed up 19p to 707.5p.

Other traders poured cold water on the rumour and said that its shares were up because all defensive stocks were in favour yesterday. Investors have turned cautious again, ahead of further eurozone updates. There were plenty of sellers, profit taking after Friday's huge rise on the back of the US QE3 plan. The FTSE 100 lost 25.36 points to 5868.16.

Morgan Stanley scribes said in a note that although many European consumer goods stocks are "relatively expensive" they still contain value and drinks giant Diageo, up 34.5p to 1,718p, and Imperial Tobacco, up 44p to 2,362p, were among stocks highlighted as buys.

Miners and banks fell out of favour as investors rejected the risk and the copper miner Kazakhmys shed 18.5p to 742p.

After the markets closed, strife-hit platinum miner Lonmin said its striking workers had accepted a pay rise offer of 22 per cent. The South African miner, which has faced six weeks of worker unrest, closed up 1p to 650p.

The City is an unforgiving place. After a tough year for Aviva, it is on track with its huge restructure – a shake-up that will see it sell or close up to 15 divisions.

But that isn't enough for two City scribblers. Analysts at Deutsche Bank and Bank of America Merrill Lynch think the market has got overexcited and Aviva's share price rally is overdone. The Deutsche analyst Oliver Steel, in a note entitled No Room For Failure, said: "Even if management were to successfully deliver on the restructuring, Aviva's capital and leverage ratios would still be less good than most peers."

Deutsche downgraded its recommendation to hold from buy, but raised its target price to 375p from 370p. Blair Stewart at Bank of America Merrill Lynch cut the insurer to underperform and gave it a 360p share price target.

Aviva's share price has jumped more than 40 per cent since its June lows and investors have been pleased with its overhaul since the "shareholder spring" when chief executive Andrew Moss was forced out. But punters took note of the broker warnings and the insurer's shares tumbled 14.3p to 344.9p – the biggest faller on the FTSE 100.

On the small caps, digital connections provider Volex was forced to issue an unscheduled trading update due to a change in demand from its largest customer in its consumer division. Analysts at Investec downgraded it to hold with a target share price of 240p but said it "remains likely to finish the year still with less than $5m [£3m] of net debt." Its shares were knocked down 67.75p to 187.5p.

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