Market Report: BT disconnected as investors hang up

Wilton Fry and his telecoms team at Bank of America Merrill Lynch have hung up on their love affair with BT. Mr Fry has been a fan of the telecoms giant for more than three and a half years but that's all over now. He switched his rating of the stock to neutral from buy and gave the shares a price target of 265p.

Investors duly took note and promptly dumped the shares which lost 5.9p to 246.2p – one of the benchmark index's worst performers.

What has put Mr Fry off? He thinks the shares have already had a good run – they are up 43 per cent in the past 18 months – and he doesn't expect their third-quarter results on Friday to be anything outstanding. He can see no reason to expect good news and is consequently concerned about BT's growth outlook.

BT's 2012 results came in below expectations and it has started to lower the guidance for the full year 2013. Mr Fry thinks this doesn't bode well for investors as consensus for revenue growth is at around 4.4 per cent less for the second half and down 4.5 per cent in the first half.

BT has been cutting costs recently and reduced staff by more than 20 per cent, but the team at Merrill claim further cost cutting will be harder to achieve.

In its defence, broadband sales have been helping the group, but Merrill also points out it is only 22 per cent of BT Retail's sales and the company is still losing consumer and business customers.

Despite BT's appeal waning in the eyes of Merrill, analysts at Oriel Securities still think BT shares are attractive. It is on their buy list and they gave the stock a 310p target price. They think more customers will sign up for its Openreach superfast fibre broadband. BT is investing £2.5bn to deliver it to two-thirds of the UK by the end of next year and Oriel thinks the earnings from this might be underestimated. Investors aren't enamoured and the shares have declined 7 per cent in three days.

Joining BT as a faller was Royal Bank of Scotland. It is back under the spotlight just as its share-price rally disappeared.

Analysts at Espirito Santo rated the bank a sell with a share-price target of 320p. Espirito's view follows Goldman Sachs the day before, and both join Investec's banking guru, Ian Gordon, who earlier this month decreed it was time to ditch the shares.

The analysts insist it is time to get shot of the stock, just as taxpayer outrage re-emerges over this year's £250m bonus round. RBS is also about to be landed with around £500m in fines for its part in the Libor rate-rigging scandal.

The shares slumped to the bottom of the FTSE 100 index, down 22p to 345.8p. Analysts are worried about how much RBS has in its piggy bank as it is "the weakest-capitalised UK bank", which means the looming regulations will hit it hard.

The huge Libor fine payout as the bonus round arrives is bad timing and the hope of a return on the taxpayer investment remains uncertain.

Espirito's banking team isn't just anti-RBS. The taxpayer's other bank, the part-owned Lloyds Banking Group, is also a sell. Lloyds was the best-performing blue-chip of 2012 but it looks like 2013 may not be so lucrative.

The Espirito team thinks the bank will be "most impacted if regulators moved to standardised credit risks". It gives Lloyds a 48p target.

The shares dipped 1.21p to 51.93p.

Bullish investors were defying those who fear a sell-off is coming, and the FTSE 100 added 4.78 points to 6,339.19 – the first time that the index has surpassed 6,300 since 19 May 2008.

Investors might be feeling optimistic, but those invested in a gold miner in Egypt were certainly feeling jittery. There has been unrest in the country, but production at Centamin Egypt's mines is unaffected. Even so the shares declined 3.45p to 52.9p and it found itself at the bottom of the mid-tier index.

The fallout from last year's South African strikes is still being felt by diamond miner Petra Diamonds.

The group has sliced its production forecasts by 7 per cent for 2013 and the shares dug down 5.8p to 114.2p. But the group has given an output target of 5 million carats by 2019 and analysts viewed the update as broadly reassuring. Canaccord Genuity's analysts think the reduced production does not change their investment case as labour relations are now stable and it rated the stock a buy with a 151p price target.

Shares in AIM-listed diamond miners in Lesotho were hit by news of a police raid last week. Firestone Diamonds, down 0.88p to 3.25p, said there had been no disruption to its operations at its Liqhobong mine after the police removed computer equipment "without a search warrant or court order". It said it was "not aware of any wrongdoing".

Namakwa Diamonds, which runs Kao diamond mine close by, was not involved in the investigation, but its shares dipped 0.6p to 3.12p.