Market Report: Telecity falls back as deal hopes take a hit
Thursday 07 October 2010
A negative update by a US peer dampened the mood around Telecity, the data centres group, which fell back as the market rallied last night.
The stock was 12.1p worse off at 486p, easing after the American data centres specialist Equinix scaled back its revenue outlook. Equinix said it saw revenues of $328m to $330m for the third quarter and $1.22bn for the full year, lower than the $335m to $338m and $1.23bn forecast issued in July.
Although it had little to do with Telecity's business – analysts were quick to point out that the revision was down to factors unique to Equinix – the update triggered a reassessment of bid hopes. Equinix is often mentioned as a possible bidder for Telecity, but analysts said the update weighed against such a move until Equinix was on firmer footing.
Overall, the London market continued to trade higher. The FTSE 100 closed within striking distance of the 5,700 mark, swelling by 45.63 points to 5,681.39, while the FTSE 250 rose by 118.27 points to 10,800. The gains were sparked by hopes that Western central bankers would take their cue from Japan and unveil another round of stimulus measures. On Tuesday, the Bank of Japan reduced its benchmark interest rate to a range of nought to 0.1 per cent and pledged to pump fresh funds to support growth in the struggling Japanese economy.
Stimulus hopes were accompanied by some positive data out of Europe, with German manufacturing orders rising by a higher-than-forecast pace of 3.4 per cent over August.
There was some negative news – US private sector jobs fell unexpectedly in September – but instead of undermining the market, it underpinned gains by giving credibility to the case for fresh stimuli and weighing on the US dollar.
Weakness in the greenback boosted metals prices, which in turn drove interest in mining equities. Anglo American was among the strongest, rallying by around 4 per cent or 110.5p to 2,752p, while Kazakhmys gained 56p to 1,483p. Xstrata was 46.5p better off at 1,286.5p and Antofagasta closed at 1,313p, up 44p.
African Barrick Gold was 22p stronger at 638p. Traders bought in as the prospect of fresh monetary stimuli in the UK and the US reignited concerns about the possibility of higher inflation in coming months. The concerns boosted gold, the traditional hedge against inflation, and the yellow metal, which had been on a roll in recent weeks, swiftly rose to a fresh record yesterday.
Elsewhere, British Airways, which cheered the market with some positive traffic figures on Tuesday, continued to rally, adding another 11.5p to 266.1p after Barclays Capital hiked its target price for the stock to 350p. "[The] disclosure from British Airways that yield growth in [the second quarter] should exceed [the levels seen in the first quarter] points to a better-than-expected revenue performance," the broker said, reiterating its "overweight" view.
In the wider sector, easyJet rose by around 12 per cent or 46.4p to 433.3p after saying that it expected to beat profit expectations for the full year, prompting Numis to abandon its "reduce" stance. The broker issued to "hold" advice, saying that it remained cautious about making a more position recommendation until differences between the board and the founder and leading shareholder, Sir Stelios Haji-Ioannou, are resolved.
"Sir Stelios... is campaigning for zero capacity growth. We do not believe that this is what institutional holders want, nor do we believe that it maximises shareholder value," Numis said, sticking with its 376p target for the budget airline's stock.
On the downside, the tour operator TUI Travel was 1.5p worse off at 224.4p as the cheer sparked by its trading update on Tuesday was offset by some cautious commentary from UBS. The broker moved the stock to "neutral" from "buy", and repeated its "buy" view on sector peer Thomas Cook, which firmed up by 0.4p to end last night's session at 180.1p.
"The main investment case for TUI Travel revolves around a possible bid from TUI AG. This may occur if it can fully monetise its investments in Hapag-Lloyd," UBS said, arguing that, in contrast, FTSE 250-listed Thomas Cook offered "a significant valuation discount, similar growth rates and a higher dividend yield".
In terms of rumours, the office rental group Regus was once again the focus of bid chatter. The rumours did not throw up any names, but proved potent enough to drive the shares to 84.7p, up more than 5 per cent or 4.45p. Further afield, the broadcaster ITV was 2.3p stronger at 61.55p on optimism ahead of its interim management statement next month.
The commercial property group Great Portland Estates rose by 10.4p to 364.1p after Nomura abandoned its bearish stance on the European real-estate sector. "Our contrarian forecast of a dip in commercial real-estate values is now, we think, fully priced into share ratings," the broker said, upgrading the sector to "neutral".
In the wider sector, Shaftesbury and Derwent London were also among the gainers, adding 8.9p to 453.4p and 32p to 1,599p respectively.
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