Market Report: Stagecoach speeds up on rail deal hope

 

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The Independent Online

As eurozone worries hit markets again yesterday, stocks across the City were forced into reverse. One company attempting to drive the other way, however, was Stagecoach amid optimism it could be in for a winning August.

Next month will see the Transport Secretary Justine Greening announce who will run trains from Glasgow to London for the next 14 years. The West Coast franchise is currently operated by Virgin Trains, a joint venture between Stagecoach and Sir Richard Branson's Virgin Group, but they face competition from FirstGroup (down 3.5p to 204.2p) as well as France's Keolis SNCF and Dutch company Abellio.

Recent reports have suggested the two UK companies are in the lead, and yesterday Joe Spooner, an analyst at Jefferies, claimed Virgin Trains was the "best placed" to win the franchise because of its incumbent status.

According to his calculations, this would be rather a big deal for Stagecoach – he worked out a victory would be worth an extra 13.5p a share, around 5 per cent of its current value. Citing this, he decided Stagecoach's shares were now worth buying, calling it "the default choice in this sector for many investors right now".

Mr Spooner was also bullish over its Megabus unit, saying he expected profits from the business to increase more than five-times by 2014. Stagecoach yesterday completed a £86m deal to buy nine businesses from US group Coach America, expected to help with Megabus' expansion plans across the Atlantic.

Although Stagecoach did manage to keep its head above water for much of the session, by the bell it had moved 2.7p lower at 284p. However, this still left it in a better shape than the FTSE 250 as a whole, which dipped 271.94 points to 11,168.85.

The FTSE 100 was smacked back 117.9 points to 5,533.87 as fears intensified over the eurozone, especially whether Spain will require a bailout. The resulting flight from risk meant it was a tough day for the financial stocks, as Royal Bank of Scotland was pegged back 6.8p to 197.9p. Meanwhile, Barclays – which is announcing its half-year figures on Friday – dropped 6.7p to 152.55p after Nomura's analysts warned the bank's dividend "could be at risk".

The commodity stocks was also being hit by bearish comments over the Chinese economy from an adviser to the country's central bank, with Evraz retreating 16.3p to 218.1p.

At the same time, analysts from Morgan Stanley claimed the Roman Abramovich-backed steel maker's long-term targets looked "too ambitious".

There were no blue-chip risers, although Weir Group was the best performer, creeping down only 1p to 1,530p after US peer Halliburton released forecast-beating figures. The pump maker was also given a helping hand by RBC Capital Market's Andrew Carter keeping his "outperform" rating ahead of its interim results next week and reiterating his belief the group "could be considered vulnerable to a takeover bid"

Rolls-Royce slipped back 23.5p to 835.5p following the news that an issue with its engines had resulted in Japan's All Nippon Airways grounding five planes. The engineering giant was also hurt by UBS keeping its "sell" advice. Home Retail isn't exactly popular at the moment – the retailer is the most shorted stock on the mid-tier index, according to Markit, with over 23 per cent of its shares out on loan. Yet yesterday Numis Securities' Andrew Wade turned into a buyer of the company, claiming recent electrical sales figures showed "real signs of life" in the sector.

At the same time, traders were also suggesting its Homebase business will have been boosted by our recent burst of sunshine, although this didn't stop Home Retail closing 0.45p weaker at 74.2p. Meanwhile, African Barrick Gold slumped down a huge 60.4p to 317p as the yellow metal digger admitted power was costing it more than expected.

Bad news from their Shabeel North well in the Puntland region of Somalia knocked back Range Resources and Red Emperor, with the AIM-listed explorers sinking 1.43p to 5.2p and 10.5p to 11p after revealing they had found water instead of oil.

FTSE 100 Risers (no risers on Monday)

G4S 241.6p (down 0.2p, 0.08 per cent) Security services group only edges back, having already lost nearly 17 per cent in less than two weeks following its failure to provide enough staff for the Olympics.

Morrisons 274p (down 0.7p, 0.25 per cent) Supermarket manages to escape relatively unscathed from the sell-off, although its share price has still dropped more than 18 per cent since December.

FTSE 250 Risers

Computacenter 344p (up 7.7p, 2.29 per cent) IT services group's climb to the top of the mid-tier index sees it continue an seven-day winning streak over which time its share price has added nearly 13 per cent.

Perform 370p (up 7p, 1.93 per cent) Sports rights company advances after Numis Securities' Paul Richards reiterates his "buy" recommendation and 493p target price on the stock.

FTSE 100 Fallers

Aviva 275.2p (down 19.5p, 6.62 per cent) Insurer is one of the worst fallers despite Bernstein's Edward Houghton estimating its shares should be worth a whopping 430p after its overhaul plans are complete.

ITV 72p (down 3.3p, 4.38 per cent) Broadcaster slides following reports over the weekend claiming it is in discussions to buy Have I Got News for You-maker Hat Trick Productions.

FTSE 250 Fallers

Aquarius Platinum 39.07p (down 3.4p, 8.01 per cent) Miner slumps after admitting that its production over the fourth-quarter fell 14 per cent while revenues dropped 20 per cent.

Morgan Crucible 252.2p (down 17.8p, 6.59 per cent) Engineer slides ahead of the release today of its first-half figures as Jefferies' Andy Douglas decides to downgrade his advice to "hold" from "buy".

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