Market Report: Miners fill Footsie high and low spots
Friday 21 December 2012
Miners topped and tailed the FTSE 100 yesterday, highlighting the mixed fortunes that resources companies bring to the benchmark index. The African gold miner Randgold Resources built up a 160p gain to 6,125p, and found a spot at the top of the pile, but the Russia-focused steelmaking and mining group Evraz got the wooden spoon, digging up a 9.2p loss to 257.8p.
Miners and resources companies have made quite a name for themselves on the FTSE 100 index. Their influence has been growing each year – they now comprise more than 11 per cent of the Footsie, up from as low as 3 per cent before 2003. Randgold has been listed since 1997, so is a veteran compared to newcomers such as Evraz, but the influx of resources and mining stocks has skewed the performance of the index over the years.
Those nursing a hangover from festive frivolities will still be aware that the FTSE 100 has had a pretty rotten year compared with other European indices and its sister index, the FTSE 250. The Footsie is up 9.5 per cent from a year ago, while the mid-cap index is ahead by more than 25 per cent. The prevalence of weaker financial, mining and resources stocks has weighed down the top-flight index.
Michael Hewson, senior market analyst at CMC Markets UK, said: "On a relative basis, the FTSE 100 has underperformed. It is likely to have been impacted by the companies that do little business in the UK that have opaque governance."
One such company that faced criticism of its corporate governance was the miner Eurasian Natural Resources Corporation. Those still at their desks in the City yesterday were reminded once more about the issues at the Kazakhstan-focused digger.
Goldman Sachs' mining pundits took the red pen to their rating of the stock, reduced it to neutral from buy and decreased their target share price to 292p from 398p.
The miner has this year faced investor unrest over corporate governance issues, and earlier this month agreed to sever its ties with the controversial Israeli billionaire Dan Gertler – they bought him out of its Congo copper-mining partnership.
The deal follows the International Monetary Fund's decision to freeze loans to Congo over concerns about the way another company said to be associated with Gertler acquired mining rights. ENRC ended down 3.9p to 276.9p on the FTSE 100. But it is also the worst performer of the year so far on the benchmark index, with its shares having declined by almost 57 per cent.
Goldman Sachs analysts said: "We believe the stock may trade sideways until the market regains confidence in ENRC's execution and capital allocation decisions, particularly cash returns to shareholders."
The hoped-for Santa Rally failed to continue as talks to address the fiscal cliff in the US hit a bump in the road, and will now drag on without solution past Christmas. The index dipped below 5,900 during morning trade on the back of fears over any resolution in the US. But investors recovered some composure and it ended down 18.35 points to 5,939.99 – still below the 6,000 mark with only four trading sessions to go until the end of the year.
Water companies were in favour among cautious investors. News that the regulator Ofwat could back down on some of its proposals for changes in their licences helped the stock up. United Utilities trickled up 8p to 682p and Severn Trent gushed to the top of the benchmark index, up 41p to 1,610p.
The temporary power supplier Aggreko produced a profit warning this week but its management is still powering on, and snapped up some more shares to take advantage of the dip in the price. Chairman Ken Hanna, chief executive Rupert Soames and finance boss Angus Cockburn all invested this week, and Aggreko's shares flickered up 18p to 1,760p.
Over on the better-performing mid-cap index, the serviced office provider Regus made a £40m bid to expand its office ownership. It has put in an offer for MWB Business Exchange, which has 64 business centres, and the shares built up a 4p gain to 109p.
Over on AIM, the tiddler Petroceltic International was lifted 0.11p to 6.66p after the Algerian authorities gave the go-ahead to a plan for developing the Ain Tsila gas-condensate field in Algeria.
Snap up shares in the mid-cap set-top box maker Pace, Peel Hunt's analysts reckon. It may have lost out to Arris on the purchase of Google's Motorola Home division, but Peel Hunt's Alexandra Jarvis thinks its stable revenues, margin gains and debt repayments are reasons to buy, and Jarvis gives it a 250p share price target. Its shares ticked up 0.4p to 187.1p.
Dump shares in the builder Carillion, Liberum Capital's Joe Brent implores. He gives the stock a sell rating with a share price target of 235p because its exposure to the Middle East is a risk and its balance sheet, he thinks, is weak. Its shares ended down 3.1p to 315.6p.
Hang on to shares in BAE Systems, Investec Securities' analyst suggests. Investec's Andrew Gollan gives the stock a target price of 325p and a hold rating. He thinks the aerospace group has already had a good run, and although recent deals in Saudi and Oman will help, trading challenges in its core US market remain. The shares reversed 1.9p to 346.1p
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