Market Report: South Africa unrest hits mining stock

  • @LauraHChesters

The strikes, struggles and violence that took hold of South Africa's mining belt over the past two months are spreading across the country, and City scribblers reckon investments in the country will be hit hard. Scribes at Bank of America Merrill Lynch said they are now "underweight the country" – meaning it could be time to sell.

Miners with operations in South Africa, including Xstrata, down 3.3p to 950.2p, and Anglo American, off 10p to 1,802.5p, all suffered yesterday while the South African insurer Old Mutual lost 2.9p to 169.5p.

Merrill's analysts said the country faced further credit rating downgrades by Standard & Poor's and Fitch after Moody decided to downgrade the country by one notch to Baa1 last week.

On the midcaps, Lonmin tunnelled down 32.5p to 516.5p, while fellow South African platinum miner Aquarius Platinum plummeted 4.75p to 42.75p after its chief executive resigned.

According to Bloomberg, South Africa's rand slumped to a three-year low as strikes that started at platinum mines in the summer crept into other areas of the economy, with the Japanese car group Toyota hit last week. Workers at South Africa's ports and rail group Transnet are expected to walk out next week, joining truck drivers who began strikes last month.

Along with concerns for South Africa, punters added fears of slower growth in China to their list of worries. The World Bank said China is likely to suffer a "more pronounced slowdown", and the news turned investors risk-averse. Miners and engineers dug their way down to the bottom of the blue-chip index in a bad start to the week, with the FTSE 100 short 29.28 points to 5841.74.

The Russian miner and steel producer Evraz sank 9.4p to 244.7p after Nomura revised its steel demand growth forecast for 2013, while the Worcestershire-based car and aerospace engineer GKN got the wooden spoon, losing 9.4p to 216.9p.

A profit warning from the midcap industrial materials company Cookson pushed its shares down more than 12 per cent, and it ended the day at the bottom of that index, down 76p to 539p. The contagion spread to peer Morgan Crucible, which dropped 21.7p to 257.8p.

The end of the mad scramble for a seat on an easyJet flight isn't just a hit with customers, City scribes are fans too. Deutsche Bank analysts reckon that easyJet's move to allow customers to pay for extra legroom or reserve a seat up front is good news for profits and shareholders of the low-cost airline. They raised their target price by 17 per cent to 745p and gave the stock a buy rating. Deutsche's Geof Collyer said that although the rise in sales likely to come from more customers paying to reserve seats "as a percentage of total group sales looks small", he thinks "the gross margin should be very high" and most of the sales from it "should drop straight through to the bottom line".

EasyJet confirmed last month it would allocate seats from November, moving away from its old model which, according to Deutsche, "business and more elderly travellers found a bit unseemly and sometimes a bit rough". EasyJet, run by chief executive Carolyn McCall, said 72 per cent of its passengers surveyed after a trial think it works better than speedy boarding.

The move by easyJet, combined with a more "upbeat year-end" at its management statement last week, has led Mr Collyer to raise his forecast. But, as always, shares aren't without risks which include, he reckons, "a further rise in the oil price, rising airport costs, weaker economic growth … and weather disruption". The shares were locked on a holding pattern at 619.5p

Staying on the transport theme, shares in the beleaguered bus and train business First Group slammed on the brakes despite a buy rating from Liberum Capital and the view that though "the dividend will definitely be cut" shares "look cheap both pre and post a rights issue". The share price alighted 5.3p to 190.8p.

The logistics group Wincanton announced it had agreed a deal to create a dedicated convenience distribution centre for the supermarket Morrisons and its shares drove up 2p to 65.5p.

Punters were spooked by rumours of poor trading and concerns over how long the merger between the soft drinks groups Britvic and AG Barr will take. Britvic lost its sparkle, down 5p to 368.8p, and AG Barr fizzed 2.3p lower to 449.5p.

FTSE 100 Risers

BP 437p (up 0.25p, 0.057 per cent) The oil giant is selling its Texas City refinery, where 15 people died and 170 were injured in an explosion in 2005, to Marathon Petroleum Corp for $2.5bn.

Morrisons 283.9p (up 5.7p, 2.05 per cent) The supermarket reached the top spot, beating the index, and joined rivals Tesco and Sainsbury's. Morrisons recently confirmed plans to open 20 convenience stores.

FTSE 100 Fallers

Amec 1,113p (down 29p, 2.54 per cent) The chief operating officer of the engineer last week said he would leave as part of a restructuring. The engineer is implementing a new business structure which will be announced at the end of the year.

Barclays 222.35p (down 5.5p, 2.41 per cent) The UK bank joined miners, financial companies and engineers at the bottom of the index as punters shied away from risk.

FTSE 250 Risers

Halfords 314.6p (up 12p, 3.97 per cent) HSBC scribes raised their target price for the shares to 330p from 215p, rating it neutral. The retailer reported strong sales last week, boosted by the Olympic effect and the popularity of cycling.

Telecity Group 957p (up 18p, 1.92 per cent) Analysts at Berenberg raised their share price target for the data centre group to 1,100p from 960p and rated it a buy.

FTSE 250 Fallers

Cranswick 745p (down 46.5p, 5.87 per cent) Sales of pork came in below analysts' expectations. Cranswick revealed sales up 7 per cent between April and June but a drop to 3.4 per cent in the last three months, caused by price rises.

Bodycote 391p (down 20.1p, 4.89 per cent) Engineering group Cookson's profit warning infected peers in the industrials sector including Bodycote and Morgan Crucible.