Market Report: Vedanta Resources misses out on long-awaited rally

 

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The Independent Online

The blue-chip index's worst losing streak for nearly nine years may have finally come to an end last night, but Vedanta Resources was among those missing on the long-overdue rally.

The India-focused miner ended up taking the wooden spoon, falling to its lowest share price for over two-and-a-half years, after City scribblers warned over risks to its banking covenants.

The group was pegged back 27p to 928p as Deutsche Bank's Grant Sporre said investors were worried over "whether Vedanta will breach covenants and whether the subsidiaries can service [the company's] debt".

The $8.5bn acquisition of Cairn India is leaving the group with a large amount of debt, and the analyst pointed out the resulting interest payments would need to be largely covered by cash provided by the Indian business itself.

However, Mr Sporre added, special dividends may be required if oil prices drop below $73 a barrel while a sustained fall in commodity prices of around 15 per cent could put its covenants at risk, according to the analyst's calculations.

Although he titled his research note "Sailing close to the wind", Mr Sporre attempted to play down any immediate concerns, saying that Vedanta's current share price was already pricing in much of this risk. Yet despite keeping his "buy" recommendation, he did trim his price target on the group to 1,670p from 2,100p.

The company's share price has also been under pressure recently thanks to the protracted nature of its deal to take control of Cairn India from Cairn Energy, which – despite being unveiled more than a year ago – has still not been completed following delays in getting approval from the Indian government.

Cairn Energy, meanwhile, was knocked back 3.5p to 264.2p as vague rumours it could be about to announce disappointing news from its controversial Greenland operations failed to go away.

Elsewhere in the oil sector, Royal Dutch Shell did manage to rise, with the energy giant driven up 31p to 2,101p. The group, together with Mitsubishi, is expected to sign a flared gas contract with Iraq over the weekend worth $17bn.

Despite the top-tier index threatening for much of the session to finish behind for the 10th straight day, it ended up being lifted 37.08 points to 5,164.65 amid speculation the EU bailout facility may not involve the private sector.

This overshadowed a woeful Italian bond auction, as well as a credit rating downgrade for Hungary – followed by Belgium after the bell – although there was little confidence over the sustainability of the bounce.

Down on the FTSE 250, De La Rue climbed 49p to 936p off the back of renewed bid hopes. Traders said the bank- note printer was being helped ahead of next week's expiry of the ban on Oberthur attempting another bid, after the French group failed with an approach earlier in the year.

Despite concerns over the development, Premier Foods jumped up 0.19p to 4.73p as the Hovis-owner revealed its chief financial officer Jim Smart will be replaced next month by former SSL finance director Mark Moran. Investec's Martin Deboo was certainly not pleased, saying he "rated [Mr] Smart highly" and warning that "changing CFO in the middle of a delicate refinancing negotiation is a risk", although he still kept his "buy" recommendation.

A rather dramatic week for Thomas Cook was brought to a turbulent end in a volatile session which saw an intraday swing of over 50 per cent. The troubled tour operator – which dropped 75 per cent on Tuesday after admitting it needed more cash – closed 1.67p better off at 18.02p thanks to reports it is close to securing funding from its banks.

Blacks Leisure became the latest retailer to issue a profits warning, as it plummeted 11.42 per cent to 3.88p on the fledgling index. The news prompted further jitters around the high street, and fashion group SuperGroup slid 30.5 to 444.5p while JD Sports (down 42p to 713p) and Kesa Electricals (down 3.2p to 81.65p) were not far behind.

Perhaps unsurprisingly, it seems as if the luxury yacht market isn't exactly plain sailing at the moment after YCO Group - which provides, in its own words, "services to the super-yacht community" – sank 2.62p to 7p on the Alternative Investment Market thanks to a profits warning.

Encouraging test results from its Pg-10 well in Slovenia resulted in Ascent Resources spurting up, as the Europe-focused oil and gas explorer shot up a huge 80.3 per cent to 2.98p.

Meanwhile, the small-cap pharma group Vectura strengthened 6p to 59p after announcing that its partner, Novartis Pharma, had filed for Japanese approval for their chronic obstructive pulmonary disease drug NVA237.

FTSE 100 Risers

Lloyds Banking Group 23.19p (up 0.79p, 3.5 per cent)

Part state-owned bank climbs after UBS keep its "buy" recommendation, although the broker does reduce its price target to 55p from 60p.

Compass 551p (up 5.5p, 1.01 per cent)

Catering company's announcement it is buying the South African cleaning specialist Supercare is welcomed by investors as it manages to advance.

FTSE 100 Fallers

Glencore International 373.8p (down 8.35p, 2.19 per cent)

Commodities trader retreats despite its Prodeco unit managing to bring an end to industrial action at its Calenturitas mine in Colombia.

Severn Trent 1,497p (down 26p, 1.71 per cent)

Water company drops after disappointing the City with its first-half figures, with its underlying pre-tax profits seeing a greater-than-expected fall.

FTSE 250 Risers

Paragon 178.2p (up 6p, 3.48 per cent)

Buy-to-let mortgage company moves ahead after getting a boost from Canaccord Genuity's analysts raising their target price to 257p from 239p.

Dixons Retail 10.27p (up 0.25p, 2.5 per cent)

Citigroup cuts its price target on the electricals chain to 10.5p from 12p in the wake of the retailer's half-yearly report, which was released on Thursday.

FTSE 250 Fallers

Misys 240.9p (down 8.9p, 3.56 per cent)

Software company drops for the seventh consecutive session, as Royal Bank of Scotland decides to reduce its price target to 257p from 367p.

Mothercare 148.7p (down 0.9p, 0.6 per cent)

Baby products retailer falls in the wake of having risen on Thursday following vague takeover rumours claiming potential private equity interest.

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