Profit-taking sullied the mood around Associated British Foods last night, with traders booking gains after analysts directed their attention to the chinks in the Primark-owner's armour.
Evolution Securities said that while ABF's updates since December 2009 had been "almost universally upbeat", the most recent statement "was a little more mixed", with the Illovo and Spanish sugar businesses, for instance, proving "a bit weaker than expected". There is also the possibility of margin pressure at Primark, the discount-clothing chain that now accounts for a third of group profits, according the broker.
"Although Primark margins will be up for the year, we are getting slightly concerned about cotton prices, wage inflation and freight costs," Evolution explained, adding that, besides facing tough comparatives in 2011, the chain also had to contend with a "sharp VAT hike in the UK" at the beginning of next year. Though still positive on the long term, the broker said "this is an opportune moment to bank profits" – a call that was heeded by investors, which drove ABF to 1,031p, down 25p.
overall, the market was slightly lower, with the FTSE 100 easing by 10.57 points to 5,148.28 and the FTSE 250 closing at 9,726.48, down 48.83 points, following disappointing economic data from the US. A new report showed that American house builders had turned more pessimistic during July, with a closely watched index of confidence dropping by more than had been expected. The news led to a renewal of anxiety about the sustainability of the recovery in what remains the world's largest economy.
The session had begun on a more positive note. News of renewed talks between International Power, up nearly 11 per cent or 33.2p at 350p, and GDF Suez, and of a Canadian consortium's bid for Tomkins, up nearly 28 per cent or 63.9p at 294.2p, had sparked hopes of an increase in deal activity, driving the FTSE 100 to an intra-day high of 5,196.77. Besides offsetting the impact of a credit ratings downgrade for Ireland, the optimism had also overshadowed the news from Hungary, where weekend loan talks between the centre-right government and representatives from the EU and the IMF ended in failure.
Back with the day's movements, and BP took the FTSE 100 wooden spoon, retreating by nearly 5 per cent or 19.3p to 387.85p amid worries about possible seepage from the recently capped wellhead in the Gulf of Mexico. The stock was also the focus of speculation regarding asset sales, with the market awaiting news on the possible disposal of half of the oil's giant's take in Alaska's Prudhoe Bay oil field.
On the upside, the luxury goods group Burberry rose by 5.5p to 805p after both Nomura and UBS raised their targets for the stock, moving them to 826p and 790p respectively. Both were pleased by the company's decision to buy out its Chinese franchisees and take control of its operations in the fast-growing market, though both stuck to their "neutral" view on the shares. "We believe most of the good news is priced in at current levels," Nomura said.
The banks were mixed as optimism ahead of the results of the EU stress tests began to fade following the release of the US house-building data. Barclays still managed to avoid a fall, adding 0.65p to 285.3p as traders recalled the rally sparked by the conclusion of a similar exercise in the US last year. Royal Bank of Scotland and Lloyds were less successful, however, easing by 0.15p to 43.56p and by 0.34p to 59.27p respectively.
In the wider financial space, bid rumours made a comeback around Man, the London-based hedge fund group. The stock added 2p to 211.4p as speculators, taking their cue from the news around International Power and Tomkins, revisited theories of interest from the Bank of New York Mellon. Further afield, the data-centres specialist Telecity also attracted bid talk, rising by 3.8p to 423.8p on chatter of interest from US peer Equinix.
Elsewhere, house builders were out of favour after a report from the property company Rightmove suggested that house-price growth had weakened during July. Responding to the survey, Howard Archer, chief UK economist at IHS Global Insight, said: "We had expected house prices to be essentially flat overall through the second half of 2010 [but] a modest relapse is looking ever more likely,"
The worries weighed on Barratt Developments, which fell by more than 5 per cent or 5.45p to 93.85p. Taylor Wimpey was more than 4 per cent or 1.1p lower at 24.99p, while Bellway lost nearly 4 per cent or 22.5p to 568p.
electronic payments firm Paypoint was 7p weaker at 343p as profit-taking – the stock rallied by nearly 33 per cent on Friday – offset support from UBS. The broker upped the stock to "buy", citing the National Lottery Commission's announcement that it was "minded" to refuse permission for Camelot to move into bill payments and mobile-phone top-ups – something that would have been a "substantial threat to Paypoint".
UBS said that while a final decision was not due until September, it saw a low probability – 10 per cent, in the broker's view – of the Commission siding with Camelot.