Market Report: RBOS falls with FTSE as Irish bailout news bites
Tuesday 23 November 2010
There was lift-off yesterday for Qinetiq after the defence company won a lucrative contract with Nasa, but it could not maintain altitude as the markets failed to hang on to their early gains.
In a deal that could be worth as much as $2bn (£1.25bn), the company will provide services at the Kennedy Space Centre in Florida that are expected to include developing technology for use on the ground and during space missions. Starting in March 2011, the contract will run for at least five years and may be extended to eight.
Analysts were in agreement that the deal was a good development for the company, which in the last year has seen its share price drop from nearly 180p and was recently hit by worries over spending cuts.
Edward Stacey from Execution Noble, who believes that "the big challenge for Qinetiq is to show they are turning to growth in their services businesses", called the contract a "big step in the right direction", while Liberum's William Shirley said it was "not transformational, but it is clearly helpful".
The markets agreed, and during the first few hours of trading Qinetiq touched 115.8p. However, by the end of the day it had fallen to 113.7p, still a rise of 1.4p and a better performance than sector rival BAE Systems, which dropped 3.8p to 345.9p.
Qinetiq was by no means the only company to endure a disappointing afternoon, as despite a strong start the FTSE 100 finished 52 points down on 5,680.83. The news that Ireland would receive a bailout as anticipated failed to calm the markets, with worries about which country will be next and the stability of the Irish government knocking investors' confidence.
Leading the blue-chip index down were the banks, with Royal Bank of Scotland the worst performer thanks in part, according to traders, to worries over its exposure to the Irish housing market. It dipped 1.93p to 39.84p, and Lloyds Banking Group – down 2.79p to 63.93p – was not far behind.
It was a different story for Tui Travel, following speculation that its parent company could increase its stake in the tour operator. According to the German newspaper Welt Am Sonntag, Tui may sell its share of the shipping group Hapag-Lloyd, leading to talk that the proceeds could go into Tui Travel, which duly advanced 7.2p to 208p.
A lucrative new contract with Air China was not enough to keep Rolls-Royce in the black, despite it being worth $1.8bn (£1.1bn). The airline has ordered engines for 20 planes, none of which are the Trent 900, the model which failed in a Qantas aircraft earlier this month. However, the good news could not prevent the engineering giant edging 1.5p down to 590.5p.
Having risen around 300p since October 2008, Arm Holdings has been an investors' favourite recently, yet Société Générale is no fan. The broker initiated coverage on the chip maker in bearish fashion, calling it "overrated" and slapping a "sell" rating on it.
"Arm has ridden the surge in smart phones but growth will likely become harder to realise," said its analysts, who added that "Ill-founded takeover speculation is lessening, leaving the shares vulnerable to any disappointment." Still, the broker did not do too much damage, and Arm finished just 1.2p down on 383.7p.
on the FTSE 250, a move towards refinancing by Taylor Wimpey was welcomed by investors and brokers alike. The housebuilder had to raise £350m to use a £950m bank loan it had previously arranged, and it has now said that it will sell £250m-worth of bonds, getting the rest of the money from a £100m debt facility.
Deutsche Bank was fairly cheerful about the news, saying that with "refinancing achieved ahead of schedule the market may gain confidence in the company achieving the next stage of its transformation in a timely manner". Panmure Gordon believed the new arrangements "should satisfy the conditions of Taylor Wimpey's refinancing", although it kept its "hold" rating; the company rose 0.8p to 25.3p.
Top of the pile was Spirax-Sarco, which made 84p to 1,844p. Bank of America Merrill Lynch gave the engineer a "buy" rating, calling it a "genuine long-term compounder" and said that its "upgrade is not a short term catalyst driven call – we think the stock's recent underperformance and current valuation offers a good entry point to a long-term compound return investment".
Meanwhile, at the other end of the mid-tier index, the hedge fund group Gartmore suffered a terrible session, losing over 10 per cent of its share price. The group has been struggling ever since it announced its high-profile manager Roger Guy was retiring, and yesterday it slid 11.9p to 98p.
down among the small caps, a record profit for the year boosted RM, the maker of interactive whiteboards, up 5.5p to 156p. Meanwhile, on the Alternative Investment Market, the oil group PetroLatina announced it had been given the go-ahead to proceed with production at its Coló* field in Colombia, news which led it to jump 5p to 45.25p.
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