The IT group Logica was in focus last night as traders turned to the read-across from its US peer Accenture, which issued quarterly results on Thursday.
The analysts at Bank of America Merrill Lynch said that if the growth targets outlined in Accenture's update were correct, then current estimates for Logica were too low. Accenture said it expects full-year net revenue growth to range between minus 3 per cent and plus 1 per cent, implying a "mighty bounce back" to 7 per cent growth in the second half of 2010, according to Merrill, which said management's tone on the results call was "remarkably upbeat". Indeed, the commentary was "peppered with references to strong pipelines and bookings". The broker said this bodes well for European groups such as Capgemini and Logica, as their "revenue growth has tracked Accenture's very well through the downturn".
"Of course, it could be that Accenture's guidance is wrong, however we would point out that this has proven to be a reliable indicator in the past," Merrill said, helping Logica to stand firm at 114.7p, up 0.5p. "Just last quarter Accenture surprised everyone for calling out 9 to 12 per cent revenue declines for this quarter, when Capgemini were guiding to 4 to 6 per cent in the second half (with minus 6 per cent pitched as an absolute worst case). Three weeks after Accenture, Capgemini conceded that actually the second half would be [down] 9 per cent, very much in line with what Accenture had signalled."
Overall, the FTSE 100 edged marginally lower to 5196.81, down 20.8. The FTSE 250 was off 58.32 at 8999.08. It was a rocky session, with volumes spiking in early trading as options expired. Sector-wise, early weakness in the US dollar underpinned gains in metals prices. The rally began to fade following a weak start on Wall Street, though a number of stocks still managed to close in positive territory.
BHP Billiton, for instance, was 20p ahead at 1883p, while rival miner Kazakhmys rose 5p to 1250p. Rio Tinto, on the other hand, touched a session high of 3198p, before ending down 2p at 3132p. The Eurasian Natural Resources Corporation was also weak, declining 14p to 860p.
Similar factors were at play around the oil and gas issues, with crude prices responding to the dollar, and to reports of a brief Iranian incursion into an Iraqi oilfield. In the exploration and production space, Tullow Oil was 15p ahead at 1252p, while Cairn Energy rose by 11p to 3046p. Of the majors, BG, whose target price was raised to 1460p from 1425p at Goldman Sachs, was 1.5p firmer at 1087p, while BP, which was upped to "buy" from "neutral" by the same broker, gained 2.2p to 576.5p.
"We upgrade BP ... on the back of improving leverage to the oil price (with the new production from the Gulf of Mexico) and relatively low capital expenditure levels, providing by far the highest free cash flow yield in the sector at 11 per cent in 2010," Goldman said, adding: "We still believe that the company will not be able to increase production from its current project backlog. However, we think the market is underestimating the earnings power of BP in a higher oil price environment."
Also on the upside, the medical devices manufacturer Smith & Nephew was 9p stronger at 622.5p after UBS upped its target price for the stock to 640p from 560p. The broker said S&N was now a "lean organisation", with the new management overhauling sales practices in the European market, which should return to growth in 2010. Turning its mind to the other side of the Atlantic, UBS added: "US orthopedics could surprise on the upside if the premium market recovers in 2010."
On the downside, the banks remained weighed down by concern about the regulatory proposals recently put forward by the Basel committee on banking supervision. As a result, Lloyds was 4.7 per cent or 2.4p weaker at 48.7p despite being upped to "outperform" at Exane BNP Paribas. The Royal Bank of Scotland was 0.91p behind at 29.83p, while Barclays fell by 9.6p to 264.25p, amid concern at the way core tier 1 capital had been defined in the Basel proposals.
Further afield, National Express was 1.3p ahead at 186.3p after Morgan Stanley resumed coverage on the transport group with an "overweight" rating, citing the prospects for a recovery as we move into 2010.
"We believe [National Express] will benefit from any easing in the global economic backdrop in 2010 and [from a] reduction in its fuel bill thanks to hedging at a lower level compared to this year," the broker said, setting a 230p target price on the stock. "A further unique source of earnings growth is the significant scope for margin recovery, driven by the underperforming US and UK bus businesses."
The retail sector was unsettled, with traders continuing to bank profits on the back of the recent disappointing retail sales figures. The department stores group Debenhams, for instance, was 0.55p behind at 81.2p, while the music retailer HMV was 1p weaker at 95.5p. Game was also lower, declining by 0.5p to 108p despite some support from KBC Peel Hunt, which switched its stance on the stock to "hold" from "sell".