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Britvic: Fruit Shoot recall wipes £25m off profits
MARKET BLOG: It's been a bad day for Britvic and luxury retailer Burberry, but the FTSE 100 recovers to close virtually unchanged.
16.15: Britvic (BVIC.L) shares tumbled 14% after the drinks manufacturer said the cost of recalling Robinsons Fruit Shoot and Fruit Shoot Hydro packs would wipe between £15 million and £25 million of profits in the next two years.
Last week the company recalled the drinks packs over safety concerns about a new cap design. Today it said it had been unable to fix these, and would have to re-supply the packs with alternative caps. This will take up to six weeks, meaning it will be out of the market for most of the summer holidays.
In another blow for investors, including the Newton Higher Income fund, it said trading had not improved since it warned in May that the poor weather had hit sales. It says full-year results will be at the bottom end of market forecasts, and that's before the impact of the Fruit Shoot recall.
The shares closed 42p lower at 258p. They have fallen 20% year to date.
Main movers of the day
Glencore (GLEN.L), which hopes to seal a merger with mining partner Xstrata (XTA.L), closed 1.85% higher at 309p. Aviva, up 1.5% at 291.5p, continues to excite investors over its plans to slim down and simplify the group.
Polymetal (POLYP.L), the Russian precious metals miner, slumped 4.9% to 840.3p after Russia's Supreme Arbitration Court ordered it to pay 883 million roubles (£17.4 million) in taxes and fines relating to the way it priced sliver in contracts.
Russian authorities claimed it had lowered the tax it paid by selling silver at 30-45% beliow the market price. The company argued the sales had been part of a loan agreement with Dutch bank ABN Amro.
Marks & Spencer (MKS.L) fell another 3% to 322p on further consideration of yesterday's disappointing first quarter results.
The FTSE 100 closed virtually unachanged at 5,664.
Burberry takes a tumble
The day's biggest faller in the FTSE 100 was Burberry (BRBY.L), the luxury brands retailer, down 7.4% or 95p at £11.75, after reporting a slowdown in its sales growth.
Ivailo Joradanov of Styloko.com, a fashion website, said the company had ridden the crest of the wave in emerging markets, particularly China. He said: 'The brand risks being a hostage to fortune if it focuses too heavily on one, albeit very large market.' However, he said in the UK the focus on staple items like the trench coat had 'helped the retailer buck the trend in what has been a tough year for the British high street.'
Commenting earlier in the day Kate Calvert, retail analyst at Seymour Pierce, said: 'The lack of an upgrade [to forecasts] means we do expect the shares to be weaker today but we see this as a buying opportunity as we consider Burberry a strong long-term growth story and with significant geographical and product mix opportunities as well as operational leverage to come.'
US trade deficit narrows as Wall St awaits Fed minutes
16:10: The lacklustre tone has spread to Wall Street where trading is thin ahead of the publiciation of monthly minutes from the US Federal Reserve. These will be scrutinised for any clues as to whether the central bank will follow the Bank of England and launch more quantitative easing (electronic 'printing' of money).
There was good economic news for the US as its trade deficit narrowed slightly in May, with the gap shrinking 3.8% to $48.7 billion, accordig to the US Commerce Department.
Nevertheless, US markets are slipping for the fifth session in a row amid concern over company profits. The Dow Jones industrial average has fallen 50 points, or 0.4%, to 12,603, with the tech-heavy Nasdaw index 11 points, or 0.4%, lower at 2,890, although the S&P 500 is basically unchanged at 1,341.
In the UK the FTSE 100 was approaching close 19 points down at 5,645. In Europe the Euronext 100 dipped 4 points to 610.
Lloyds exposure to Libor lawsuits could reach £1.5bn
13:45 More on that Liberum 'sell' note on Lloyds. Analyst Cormac Leech believes investors are being too 'sanguine' about the threat of Libor lawsuits to the bank. Although Lloyds has a much smaller interest rate derivative trading business than Barclays, Leech estimates its liability could be as much as £1.5 billion, which is why he is abandoning his previous 'buy' recommendation.
Lloyds shares (LLOY.L) are off just a fraction of a penny to 30.5p so the note hasn't had much of an impact. But Leech's logic is interesting. He starts with the FSA estimate which puts the size of the Libor derivatives market at $500 trillion. He assumes 10% is eligible for class action lawsuits 'with demonstrably distorted rates'. He also assumes the Libor rate has been misquoted by an average of 10 basis points for four years.
'On that basis the 16 banks setting the rate would have in aggregate a liability of $200 billion.'
No wonder the Libor scandal has been described as the banking industry's 'tobacco moment', he says.
Leech argues that even if that figure is halved in out-of-court settlements it would still leave Lloyds with a potential liability of £3 billion, net of tax.
There is a lot of uncertainty over whether litigants can prove the banks colluded to manipulate Libor and what the true rate of the inter-bank lending rate should be. So Leech halves his figure again to factor in a 50% probability of it happening to arrive at his £1.5 billion estimate.
Okay, there is a lot of playing with numbers here but it underlines the scale of the issue.
The FTSE 100 is trading 12 points lower at 5,652. The Dow Jones is expected to rise 17 points to 12,602 when US trading starts shortly.
11.45: Also feeling the pressure among companies reporting today is Hays (HAYS.L). Shares in the recruitment agency fell 2.25p or 3% to 70.8p as net fee growth of 2% in its fourth quarter failed to hide a 9% decrease in UK and Ireland. In a statement the company said it expected conditions to remain challenging but said it did see opportunities for growth. The shares have risen 10.7% so far this year but are still a long way off their 2007 pre-crisis high of £12.46.
Profit taking in Barratt Developments (BDEV.L) saw the shares shed 1.3p or 1% to 135.8p after a fourth quarter trading statement. The housebuilder expects operating profits for the full year to be up 41% on last year at around £1921 million on revenues 14% higher at £2.3 billion. The company has almost halved net debt to £170 million and expects to complete 12,637 units by the end of its year. Mark Clare, group chief executive, said the year had 'seen a rapidly improving performance across the group and shows that our strategy is delivering.' The stock has had a blistering year too, rising 46% but is way off the 2007 pre-crisis high of £12.46.
Thorntons (THT.L) was sold off after the chocolatier said fourth quarter trading was in line with its expectations. Sales for the nine weeks rose by 7.8% to £24.7 million. The company is struggling back after a string of profits warning and its shares are up 23% so far this year.
However, Icap (IAP.L) rose nearly 4p or 1.25% to 315p ahead of the inter-dealer broker's annual general meeting despite a 9% fall in first quarter revenue. Chief executive Michael Spencer said: 'The sluggish global economy and eurozone crisis are inevitably leading to reduced trading volumes despite some active days.' The shares have fallen 9% so far this year.
GlaxoSmithKline (GSK.L), the widely held drugs giant, recovered 12p or 0.8% to £14.66 on news that a late-stage clinical trial of dolutegravir, an AIDS drug, had done well against a rival treatment. The treatment belongs to ViiV Healthcare, a joint venture formed between Glaxo and Pfizer.
The shares fell 3% yesterday after UBS cut its earnings forecasts for this year and slashed its 12-month price target to £15 from £17 but retained its 'buy' stance.
Burberry leads FTSE lower as luxury sales falter
09:10: Burberry (BRBY.L) shares fell 4.6% or 60p to £12.24 after the luxury brands retailer reported a small slowdown in sales as market conditions worsen. The company, which is expanding rapidly in Asia and China, said revenue in the three months to 30 June, the first quarter of its financial year, had been £408 million. This represents an underlying increase of 11%, down from 15% in the previous quarter and lower than analysts' consensus forecast of 13%.
The group, which is a member of Citywire Top Stocks, said retail revenue grew an underlying 14% to £280 million, with comparable store sales up 6%, led by growth in the UK, France, Germany and China.
Nomura has cut its price target for the shares to £14.50 from £15.30 but maintained its 'buy' rating
08:55: The FTSE 100 has fallen 15 points to 5,649 in the first hour of trading.
In Europe the Euronext 100 slipped 0.5% or three points to 610.5. Sentiment was not helped by Germany's finance minister Wolfgang Schaueble (pictured above) saying he hoped the country's Constitutional Court would pass judgment on the EU's bailout fund and fiscal pact before the autumn. Most people would say the sovereign debt crisis needs a swifter response than that.
By the way, in case you missed it, here is my beginners' guide video to the eurozone debt crisis.
Wetherspoon says cheers, but FTSE set to dip
07:55: The FTSE 100 is likely to open lower after falls overnight in Asia and the US caused by signs that the slowing global economy will affect corporate second quarter earnings.
Italy's declaration yesterday that it may want to tap the eurozone bailout fund to keep its borrowing costs down will worry European markets.
There is a fair bit of company news in the UK today.
JD Wetherspoon (JDW.L) says like-for-like sales for the 11 weeks to 8 July rose 6.1% as the pub operator says demand for its drinks and meals was boosted by the Jubilee celebrations and the Euro 2012 championship.
Moneysupermarket.com (MONY.L) says second quarter trading was good and the price comparison website expects half-year revenues of around £102 million and earnings of £28.5 million.
Liberum cuts Lloyds Banking Group (LLOY.L) to 'sell' from 'buy' and lowers its target price 28p from 29p.
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In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
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Look up the funds
Look up the shares
- JD Wetherspoon PLC (JDW.L)
- Moneysupermarket Com Group PLC (MONY.L)
- Lloyds Banking Group PLC (LLOY.L)
- Burberry Group PLC (BRBY.L)
- Hays PLC (HAYS.L)
- ICAP PLC (IAP.L)
- Thorntons PLC (THT.L)
- GlaxoSmithKline PLC (GSK.L)
- Barratt Developments PLC (BDEV.L)
- Glencore International PLC (GLEN.L)
- Aviva PLC (AV.L)
- Polymetal International PLC (POLYP.L)
- Weir Group PLC (WEIR.L)
- GKN PLC (GKN.L)
- Rolls-Royce Holdings PLC (RR.L)
- Meggitt PLC (MGGT.L)
- Britvic PLC (BVIC.L)
- Xstrata PLC (XTA.L)
- Marks and Spencer Group PLC (MKS.L)
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