Regus, the serviced office provider, was among the few stocks that managed to rise as the London market, rattled by credit rating downgrades for both Greece and Portugal, headed south last night.
The FTSE 250-listed stock was 1.5p higher at 120p against a decline of 2.6 per cent or 150.33 points to 5,603.52 for the FTSE 100 and a fall of 2 per cent or 220 points to 10,470 for the FTSE 250. Citigroup triggered the advance, telling clients that Regus was primed to perform as the market responds to signs of a turnaround in the world economy. The advice met a ready audience among traders, who, taking their cue from strengthening economic indicators, have been seeking so-called recovery plays – businesses that, owning to their sensitivity to the rhythms of the economic cycle, tend to rise as key indicators turn positive.
"Regus's long-term fixed cost base versus the short-term nature of its customer contracts makes it one of the more cyclical businesses in the support services sector," Citi said, pointing out that while this gearing caused margins to weaken over the course of the recession, it now leaves the company "well positioned to recover in 2011 and beyond". Moreover, though recent gains in the share price suggest that investors are already looking towards the turnaround, the valuation continues to offer upside on a twelve-month view, Citi added, initiating coverage with a "buy" stance and a 145p target price.
Overall, blue chips and mid-caps alike veered sharply lower as traders awaited further clarity on the Greek bailout. Late afternoon news from the ratings agency Standard & Poor's, which downgraded ratings for both Greece and Portugal, served to hasten the slide, with only two FTSE 100 stocks managing to close in the black. The lack of appetite for risk pressured commodity prices, with copper, for instance, touching a one-week low as the dollar rose against the euro. Miners tracked the pullback, with Kazakhmys – one of the FTSE 100's leading copper plays – sliding by more than 6 per cent or 91p to 1,389p. Antofagasta, another copper specialist, was 39p behind at 1,025p, while the Mexican silver producer Fresnillo lost 37p to 803p as traders moved out.
Similar factors were at play in the banking sector, where the flight from risk offset the impact of some positive news from Lloyds, which lost 2.07p to 68.17p despite saying that it had returned to profitability in the first quarter as the level of bad loans fell. Lloyds wasn't alone, however, with Royal Bank of Scotland shedding 2.05p to 56p, Barclays slipping to 357.2p, down 13.7p, and HSBC ending 20.1p behind at 665.7p. Standard Chartered was also weak, closing 41p lighter at 1,731p.
The insurance group Prudential did its best to overcome the downdraft, touching a session high of 567p, up 21p, following reports that its largest shareholder was mulling a possible break-up bid as an alternative to its planned takeover of AIA, the Asian arm of America's AIG.
The gains did not last, however. Short-sellers, who've been building positions ahead of the Pru's capital raising, must have been relieved when Prudential eventually fell back with the wider market, closing 6p lower at 540p last night. The wider sector was also behind, with Legal & General losing 4.35p to 85.15p and Aviva declining to 356p, down 16.6p.
In the oil and gas sector, Royal Dutch Shell managed to stand firm, adding 8p to 1,997.5p after JP Morgan Cazenove abandoned its negative stance, citing the prospect of a turnaround in the sector's performance in the current quarter. The broker said that while the first quarter had proved uninspiring, with the European oil and gas sector underperforming the market by more than 3 per cent between January and March, the second quarter may mark a reversal of fortunes.
"The second quarter carries the highest historical odds of market outperformance of the four calendar quarters," JP Morgan explained, revising its view on Shell to "neutral" from "underweight".
Further afield, the military goods manufacturer Chemring shrugged off some bearish comment from Execution Noble, firming up by 12p to 3,635p despite the broker initiating coverage with a "sell" view. Execution said that while the company has defied expectations of an end to what it termed its "phenomenal run of growth", "the slowdown, when it comes, could prove to be very dramatic in several of the segments in which Chemring operates. We cite a report from the National Defense Industrial Association which suggests that munitions acquisition by the US military, for example, fell by 80 per cent during the 1985-1994 downturn," the broker said.
Game also added 2p to 99.2p after JP Morgan said that, notwithstanding a number of strategic challenges, the video games retailer still offered value. "It is very cash generative and as it slows down its investment and exits stores, it is rapidly building up cash," the broker said, pointing to the possibility that management could return some of that cash to shareholders. Deal rumours could also "provide an extra fillip to the shares".
FTSE 100 Risers
Up: Imperial Tobacco 1,953p (up 6p, 0.3 per cent) First-half earnings beat forecasts and the company signals improvements in the second half.
Down: Shire 1,461p (down 7p, 0.5 per cent) Outperforms the FTSE 100 as appetite for risk wanes and traders seek cover in defensives.
Down: Whitbread 1,623p (down 8p, 0.5 per cent) Outperforms amid optimism ahead of its full-year figures, which are due for publication tomorrow.
FTSE 250 Risers
Up: Connaught 302p (up 25p, 9 per cent) Interim results stoke hopes of recovery and Numis switches its stance from "add" to "buy".
Up: N Brown 265p (up 12.6p, 5per cent) Gains ground after full-year results beat forecasts; upped from "sell" to "buy" at Oriel Securities.
Up: Chloride 298p (up 1p, 0.3 per cent) UBS reiterates its "neutral" stance on the stock but revises its target price from 210p to 300p.
FTSE 100 Fallers
Down: Rio Tinto 3,607p (down 197p, 5.2 per cent) Mining sector declines as metals prices fall back amid concerns about Greece and Portugal's debt.
Down: Liberty International 488.2p (down 17.8p, 3.5 per cent) Analysts at Société Générale revise their recommendation from "hold" to "sell".
Down: J Sainsbury 340.4p (down 10.8p, 3.1 per cent) Declines as watchers at Oriel Securities switch their stance on the stock from "hold" to "reduce".
FTSE 250 Fallers
Down: Premier Foods 26.6p (down 3.55p, 11.8 per cent) Posts an interim management statement and says trading conditions remain challenging.
Down: Dunelm 397.2p (down 34.9p, 8.1 per cent) Posts an interim management statement; Numis switches stance on the shares from "add" to "hold".
Down: Petropavlovsk 1,194p (down 51p, 4.1 per cent) Falls back with other mining-related stocks as metals prices come under pressure.Reuse content