Market Report: Miners wobble as traders bank profits
Wednesday 14 April 2010
Traders turned the screws on the mining sector last night, with Kazakhmys falling back following a warning on the copper price.
The stock lost 50p to 1,527p as punters booked profits. The trend was given weight by Evolution Securities, which reiterated its negative stance on Kazakhmys. The broker said its caution stemmed from its belief that a correction in the copper price was long overdue, and that high-cost producers such as Kazakhmys would be likely to suffer the most. Sector peer Antofagasta, which also specialises in the base metal, is better placed to weather a slump in the copper price, not just because of its cost profile, but also owing to the strength of its balance sheet, the broker explained. It boasts of a considerable net cash position, Evolution pointed out, whereas Kazakhmys has net debt, which, together with higher production costs, tends to weigh on sentiment when prices tick lower.
"The copper price has got ahead of itself and is due a considerable correction, the beginnings of which we thought had started in January. However, [it] has rallied again, aided by the Chilean earthquake, and again we see scope for a correction," the broker said, reiterating its "sell" view on Kazakhmys, albeit with a revised 1,270p target price, compared to 450p previously. Evolution's assessment notwithstanding, Antofagasta, which was cut to "hold" by Citigroup at the beginning of the week, also lost ground alongside the wider sector, closing 24p lower at 1,021p. The platinum producer Lonmin, which fell to 2,060p, down 53p, and the silver miner Fresnillo, which lost 21p to 846p, were among the other losers last night. Xstrata, which once again was the subject of speculation regarding the possibility of a bid for Australia's Macarthur Coal, was 21p behind at 1,261p.
Overall, the weakness in the heavily weighted mining sector proved a drag on the FTSE 100, which fell to 5,761.66, down 15.99 points, despite growing confidence in the EU-backed rescue plan for Greece. The FTSE 250 was also held back, falling to 1,0418.88, down 62.89 points. Retailers, a number of whom were driven up by bid talk and some benign broker sentiment on Monday, remained firm, with Kingfisher rising by 6.3p to 238.8p and Next adding 20p to 2,323p on the back of some upbeat data from the British Retail Consortium (BRC).
Marks & Spencer at 379.9p, up 4.1p, and Tesco at 449p, up 6.3p, were also marked up after a BRC survey revealed that retail sales rose at their fastest pace in a year last month, jumping by 6.6 per cent owing to the boost provided by shoppers heading out over Easter.
Over in the banking sector, the picture was broadly weak, with Lloyds losing 0.9p to 63.63p, and the Royal Bank of Scotland falling to 44.57p, down 0.33p. Standard Chartered proved more resilient, easing 12p to 1,760p, after analysts at Shore Capital weighed in with some words of support. "The global economy is recovering and Standard Chartered is exposed to regions with high forecast GDP growth," the broker said, initiating coverage with a "buy" stance. "We believe this will underpin further expansion across wholesale and consumer banking, and positively influence future impairment levels."
Elsewhere, the pubs group Punch Taverns shot up, rallying by more than 7 per cent, or 6.1p, to 92p after Panmure Gordon had a change of heart, moving the stock to "buy" from "sell" ahead of the interim results next week. "We think the group will be able to demonstrate stabilisation in the leased pub business," the broker said, adding that while it continued to harbour concerns about Punch's managed pub business, it expected the appointment of a new chief executive to act as positive catalyst for the shares, particularly if the appointee has experience in the managed pubs segment.
The housing sector was subdued, with Barratt Developments relaxing by 2.1p to 122.6p and Bellway closing at 774.5p, down 7.5p. Taylor Wimpey was also held back, losing 0.56p to 38.36p after UBS sounded a note of caution on the company's prospects for growth, which could be constrained unless the North American business is sold. The broker's concerns stemmed from the group's debt position, which it said could limit growth.
"One option could be to sell North America – the group has stated [that] it has had enquiries," UBS said, sticking to its "neutral" view and 43p target price for Taylor Wimpey. UBS said it preferred Barratt, Bellway and Persimmon, which ended 3.8p to lower at 459.9p. Berkeley was better placed, adding 8p to 826p.
Further afield, an endorsement from HSBC failed to lift easyJet, the airline which was 2.4p behind at 473p after the broker issued a sector round-up, initiating coverage on the stock with an "overweight" stance. HSBC said it preferred easyJet to Ryanair, the case for which is clouded by some uncertainty about future margin levels, and by the valuation, which is less compelling. "EasyJet's valuation looks less stretched to us, and we like its growing mix of business traffic, which is supporting yields," the broker said, setting a 570p target price on the low-cost carrier's stock.
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