Market Report: Spending fears provoke selling around Inmarsat

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The Independent Online

Inmarsat lost ground despite the FTSE 100 shaking off news of another cut in Greece's credit ratings, registering its fifth consecutive session in the black.

The mobile satellite group was 5 per cent or 41.5p weaker at 779.5p, with traders taking their cues from some negative broker comment. Bank of America Merrill Lynch said shareholders could be hit for up to $1bn (£680m) to fund new high frequency "Ka-band" satellites as the company bids to boost top-line revenues. Such a move would scupper hopes of higher cashflow as Inmarsat ups investment plans to strengthen its fleet.

"Of Inmarsat's 11 satellites, four are beyond their original estimated useful lives, three others are due to end in the next two years and one in 2014," Merrill said, flagging the possibility of the company using the August interim results to unveil plans for a replacement fleet of up to four new satellites at a price of $250m apiece. The broker went on to revise its stance to "underperform", scaling back its target price for the stock to 725p from 800p.

Inmarsat's chief executive, Andrew Sukawaty, said the company had not decided on whether to opt for Ka-band technology, adding: "We are looking at everything for our next generation system, and if we make that sort of investment, we will do it with the target market in mind.... If we head down that path we will lay out the full story behind it."

Overall, the FTSE 100 was 15.69 points stronger at 5,217.82, while the FTSE 250 managed to add 84.84 points to close at 9,880.25. The move up was pinned on successful European bond sales, with Spain, Ireland and Belgium managing to tempt buyers despite another overnight cut in Greece's credit ratings. The auctions – Spain raised €5.8bn (£4.8bn), while Ireland and Belgium banked €1.5bn and €2.5bn respectively – eased worries about the euro area, offsetting the impact of the news from Greece.

Morgan Stanley strategists also supported sentiment, reporting that a recent client investment seminar evidenced a surprising degree of optimism about Europe, with the continent being voted "the most preferred equity region for the next 12 months, polling 49 per cent of votes".

Back with the day's movements, and BSkyB was the standout riser, ending 16.6 per cent or 99.5p higher at 700p after snubbing a long-rumoured approach from New Corp, which already owns around 39 per cent of the pay-TV group. Sky turned down a proposal valuing it at $19bn, but held out the prospect of deal activity by saying that it would recommend a higher offer from the Rupert Murdoch-controlled media giant.

Elsewhere, the inter-dealer broking group Icap was 8.2p ahead at 425.5p after Numis raised its forecasts on the back of recent data showing strength in the electronic business and anecdotal evidence of good trading volumes within the voice broking business. "We would highlight that the comparable period for the electronic volumes was poor but nevertheless the overall group momentum seems positive," the broker said, switching its stance to "add" from "reduce".

Mid-cap peer Tullett Prebon was also higher, adding 9p to 350p as analysts issued feedback on a recent presentation on the company's electronic broking capabilities. Collins Stewart and KBC Peel Hunt repeated their "buy" views, while Goldman Sachs, though sticking to its "neutral" stance and expressing a preference for Icap, raises its target price for the stock to 370p from 330p. UBS also reiterated its "neutral" view, keeping its target unchanged at 320p.

Oil services groups were under pressure amid continued caution about the potential implications of the Gulf of Mexico spill, with Evolution warning of "repercussions well beyond the immediate ban on deepwater drilling" in the area. Wellstream was 11p lower at 544p, while Hunting lost 4.4p to 467.5p as the broker highlighted the potential for delays to offshore projects – something which in turn could weigh on the potential for a significant recovery in sector revenues and margins in 2011.

"We would conservatively estimate that the end result could be a shift in the recovery of at least 12 months," Evolution warned, as BP, which is still battling to stem the Gulf of Mexico spill, lost another 13.45p to 342p. The declines followed Fitch's decision to lower BP's credit ratings by six notches, and came against the backdrop of senior oil industry executives – including BP's US chief, Lamar McKay – testifying before US lawmakers.

Further afield, Hays stood firm, ending unchanged at 98.5p, after RBS said the recruiter could meet earnings hopes even if public spending cuts trigger a sharp decline in net fees from the UK public sector. The broker's analysis suggests that today's outlook for the public sector headcount is similar to the 1990s experience, though it's worth recalling that recruiters weren't as exposed to the cuts at the time.

That said, the recent sharp peak to trough declines in private sector net fees provide a useful template, and suggest that earnings forecasts are "achievable even assuming an aggressive" decline in net fee income from the UK public sector, RBS explained.

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