Market Report: Glencore slides again as commodities fall
Tuesday 24 May 2011
It may be the biggest float ever seen on the London market, but Glencore's disappointing start to life as a listed company continued yesterday after the commodities trader dipped once again.
The group begins unconditional trading today, and is set to enter the blue-chip index after the session has closed, yet it has been trading on the grey market since Thursday following a prolonged build-up.
Despite its issue price of 530p being seen by some as conservative, Glencore failed to move upwards on its first day and was then pegged back 6p to 524p last Friday, before last night closing 10p worse off at 514p.
Its fall came as metal prices shifted down, resulting in a tough session for the miners that left Antofagasta 47p behind at 1,160p and Anglo American 121p lower at 2,830.5p. There have been fears that Glencore's market debut has arrived at the end of the commodities boom, with Goldman Sachs last month advising investors to take profits.
However, market voices remained optimistic about Glencore's chances despite its weak performance so far. "I don't think [its management] will be worried as it is still early," said Guardian Stockbrokers' Atif Latif, who pointed out a number of tracker funds will be mandated to buy the shares. "As long as they stick to what made them a success thus far I expect they will replicate that as a listed company."
The weakness in the mining sector – prompted by data showing signs of a slowdown in growth in China and the Eurozone, plus fears over the latter's debt crisis – saw the FTSE 100 slump 112.6 points to 5,835.89, its lowest level for two months.
The news that ash from the Grímsvötn volcano in Iceland was travelling towards the UK prompted flashbacks of last year when the eruption of the Eyjafjallajokull volcano caused more than 100,000 flights to be cancelled.
As fears spread a repeat could be on the cards, airlines shares across Europe fell, including International Consolidated Airlines which plummeted 12.6p to 235p. EasyJet was also behind, knocked back 17.6p to 345.1p, with little help provided by a warning from its Irish peer Ryanair over fuel costs.
The airlines were not the only ones affected by the volcanic eruption, as the tour operators Tui Travel and Thomas Cook slipped back 7.6p to 229.8p and 5.7p to 145p respectively. However, JP Morgan Cazone was more positive, saying that although the "reaction seems to be factoring in an economic impact similar to last [year]", a number of factors – including companies being better prepared – means the effect will be limited.
Wm Morrison dropped 10p to 298.3p, following reports over the weekend that the supermarket may make a move for the frozen food retailer Iceland. Matrix's Tom Gadsby was not a fan of the idea, however, saying that while "Iceland generally suits customers on a budget who are prepared to shop in tertiary locations... Morrison's range is rather more aspirational" and that therefore a bid "would be a big mistake".
its announcement last week that it had received a number of approaches – including from the private equity firms Bain Capital and Advent International – means investors have been feeling rather optimistic that not only will Micro Focus receive a formal offer, but that a bid battle would then commence.
However, the software group retreated 17.6p to 381p on the FTSE 250 after Collins Stewart poured cold water on their hopes, saying a bid would not be forthcoming for a number of reasons, most notably because its valuation was too high considering its "pedestrian" growth profile.
"While it would be tempting to hold on to wait for a bid to materialise, we believe that shareholders should consider taking some profits above 400p," said the broker, adding that the group could fall to around 325p if no offer is made.
TalkTalk increased 3.4p to 149.1p, maintaining its strong performance in the wake of its final results last Thursday, since when it has ticked up over 13 per cent. Further support was provided by UBS reiterating its "buy" recommendation on the telecoms group, and the broker also increased its forecasts while adding that there was "scope for a payout rise and merger and acquisition [activity]".
Pole position on the mid-tier index was taken by Mitie, which rose 10.4p to 220.4p after the support services company said its full-year profit had jumped up over 15 per cent. Also updating the market was British Land, and the blue-chip property group was driven back 16.5p to 576p as its final results prompted Panmure Gordon and Peel Hunt to reduce its rating to "hold".
down on the Alternative Investment Market, Fairpoint lost almost a quarter of its value after issuing a profit warning. The financial services company shed 20p to close at 68p following its announcement that it was being hit by a fall in the number of people unemployed.
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