Defensives were in favour as the FTSE 100 continued to slide last night, with Centrica claiming pole position amid optimism ahead of its half-yearly results next month.
The British Gas-owner rose to 307.3p, up 8.3p, after JP Morgan Cazenove, factoring in the recently rally in UK gas prices, the planned corporation tax changes and the company's May quarterly update, upped its estimates ahead of the results. The broker said the market may be overlooking both Centrica's growth potential and the promise of less volatile earnings.
"We see the key risk facing Centrica as increased government interference in the sector," Edmund Reid, an analyst at JP Morgan, said. "We believe this risk has reduced following Tuesday's emergency Budget, where the Government stressed the requirement to attract private sector investment into energy infrastructure. We think the main government policy – the introduction of a minimum carbon price – will be positive for Centrica." Turning to next month's update, he added: "We expect the results to be strong due to the cold winter in the UK, boosting residential gas demand at the same time as wholesale gas prices remain subdued."
Elsewhere, United Utilities (UU) was supported by Credit Suisse, which reiterated its "outperform" view. "Our analysis shows that a premium RAB [regulated asset base] trading range of 0-10 per cent looks reasonable for the UK water stocks in the coming year. UU is currently at the bottom of the range," the broker said, aiding United's rise to 525p, up 3.5p.
Overall, stocks remained under pressure, with the FTSE 100 shedding 78.29 points to 5,100.23, and the mid-cap FTSE 250 index closing at 9,.698.3, down 134.86 points. The demand outlook continued to dominate, with traders selling mining and oil & gas issues on the back of what was seen as a downbeat assessment of the American economy from the US Federal Reserve. The news from Europe only hastened the slide, with the euro falling and sovereign debt fears resurfacing on the back of rising spreads on Greek credit default swaps.
The caution sparked worry about the world's appetite for commodities, which would be pressured by any slackening in demand. The fears weighed on the likes of Kazakhmys, which was 59p behind at 1,110p, and Lonmin, which fell by 56p to 1,581p.
In other news, the departure of Australian prime minister Kevin Rudd temporarily triggered hopes of change in the country's plans to slap a tax on mining profits. The optimism was short-lived, however, with the Anglo-Australian miner Rio Tinto losing 108p to 3,282p as analysts said that though the proposals may well be watered down, a levy remained on the cards, with the new Prime Minister, Julia Gillard, opening the door to discussion, but showing no signs of abandoning the plans. "Given proposed new negotiation[s], the resolution of details may now be further in the future, opening up a longer period of uncertainty for the miners," UBS analyst Olivia Ker said.
Banks, too, were under pressure amid renewed concern about Europe's debt woes. Barclays was down 13.8p at 287p as some focused on the expected finalisation of the text of the US financial reform bill. There were worries that the proposed changes could lead to some banks having to move large amounts of over-the-counter derivatives to exchanges, and potentially taking a hit in the process. In the wider sector, the Royal Bank of Scotland was 1.53p lower at 45.19p despite Goldman Sachs revising its target for the stock to 42p from 38p. Lloyds eased by 2.39p to 56.31p. Goldman also moved its targets for Lloyds and Barclays, moving them to 84p from 83p, and to 367p from 348p respectively.
Further afield, the transport group Go-Ahead was under pressure, slumping by 9 per cent, or 119p, to 1,200p after its trading statement prompted some in the City to scale back their earnings forecasts. Panmure Gordon and KBC Peel Hunt trimmed their numbers, though both stuck to their respective "buy" views on the stock. Investec, while maintaining its "hold" stance, also lowered its numbers, but said that, given Go-Ahead's "strong UK bus franchise", profits are likely to rebound as broader economic conditions normalise.
On the upside, Grainger gained 5.7p to 119p after Collins Stewart initiated coverage on the residential landlord, advising investors to "buy". "The outlook is uncertain. Liquidity is a concern and house prices cannot be expected to advance in an age of austerity," the broker said, setting a 180p target on the stock. ""However, the company has proved its ability to survive in very difficult markets and we do not believe that it deserves to trade at a 30 per cent discount to [triple net asset values]."
Imagination technologies continued to lose ground, losing 3.7 per cent or 10.9p to 284.1p, with brokers aiding the profit-taking trend by revising their recommendations on the back of the recent full-year results. Seymour Pierce, which only recently lowered the stock to "hold" from "buy", moved Imagination to "sell", while Jefferies and Panmure Gordon downgraded the stock to "hold".