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Virgin, Hargreaves, ARM and BP lead FTSE comeback
The stock market recovers from yesterday's sell-off helped by results from ARM and BP and a possible bid for Virgin Media.
The FTSE 100 fought back on Tuesday morning, with bid hopes for Virgin Media (VMED.L), forecast-beating results from BP (BP.L) and ARM Holdings (ARM.L) helping the index claw back some of yesterday’s losses.
European markets broke their 2013 surge on Monday, selling off sharply amid the re-emergence of worries about the eurozone. Spain's prime minister faced calls to resign over a corruption scandal, while a probe of alleged misconduct involving an Italian bank was expected to widen three weeks before a national election. Wall Street followed Europe down, with the S&P 500 posting its biggest drop since November.
This morning the FTSE 100 and eurofirst 300 both rose 0.6% to 6,285 and 1,156 respectively.
‘Perhaps investors feel that the sell off was so sharp in what has up until now been a strong uptrend so far this year, that it was unwarranted and that it’s time to fill their boots again,’ suggested Angus Campbell of Capital Spreads.
Sentiment was also helped this morning by the China HSBC Services PMI, which improved to a four-month high of 54 in January.
Virgin Media soars on talks with Liberty
Virgin Media (VMED.L) raced 16% or £3.85 higher to £28.58 after the UK cable operator confirmed reports it was in talks with Liberty Global, the US media group chaired by the billionaire John Malone.
According to the Financial Times Liberty has a $3.3 billion cash pile with which to part fund a deal. Virgin Media, which has a main listing on the US Nasdaq technology exchange and a secondary listing in London, was worth £6.7 billion ($10.6 billion) before today's surge.
Bidding for Virgin would bring Malone into direct competition with BSkyB (BSY.L), down 4p or 0.5% at 812p, in which Rupert Murdoch's News Corporation has a 39% stake, and BT (BT.L), up 4.7p or 1.8% at 267.8p, which is also attempting to shoulder its way into the pay TV market.
Virgin Media confirmed discussions about a transaction had taken place and said a further announcement would be made in due course.
Virgin Media is a former Citywire Top Stock, as a result of Schroders fund manager Richard Buxton's interest in the company. The stock was a top 10 holding of his Schroder UK Alpha Plus fund at the end of last year. At the time Schroders had a 4% stake in the company, followed by Fidelity with just over 3%. Its largest investor was Capital Group, the US investment firm, with a 14% stake last September, according to Reuters data.
Virgin Media shares have shot up 91% in the past year. The Virgin Group led by Richard Branson (pictured) has a stake of just under 3% but does not have a veto on any deal, according to the FT.
ARM ‘shooting out the lights’
ARM Holdings was another big riser, with the shares up 3.6% to 921p after the technology firm beat expectations with a 17% rise in full-year revenue.
Paul Morland of Peel Hunt said ARM was ‘shooting out the lights’, and raised his target price on the shares to 930p from 800p, but kept his ‘hold’ rating for valuation reasons.
‘Despite excellent progress throughout the year, ARM managed to exceed expectations in most areas of its business,’ commented Morland.
Analysts at Societe Generale were also worried by the valuation. They kept their ‘sell’ rating on the stock, expressing concerns about cost increases and a ‘disappointing’ lack of increase in royalty value per chip.
Although the French bank said ‘ARM’s track record and position is enviable’, it expects the shares to drop back down to 640p.
BP shares rose 1.8% to 470p after the energy company reported fourth-quarter profits ahead of analyst expectations. Underlying replacement cost profit, which removes the impact of oil price movements, was $4 billion for the fourth quarter, compared with $5 billion for the same period in 2011.
BP said that it paid out $4.1 billion in the fourth quarter to cover liabilities in relation to the Deepwater Horizon oil spill. As the company progresses towards finalising the costs from the oil spill, as well as having sold its interests in TNK-BP, Sam Wahab of Seymour Pierce said ‘investors may believe that this places the company in a robust financial position ahead of a significant year of upstream activity’.
Hargreaves Lansdown (HRGV.L) shares were also higher, up 2.6% to 713p, after Barclays raised its target price for the financial services company’s shares from 800p to 820p.
BG and Barclays drop
Investors in BG Group (BG.L), though, will have to wait a little longer for a rebound in the share price after the energy company today announced a 29% fall in Q4 earnings and said its 2015 production target would no longer be reached. The shares dropped 2% to 1,082p.
Barclays (BARC.L) only sustained small share price losses, down 0.2% to 290p, despite increasing provisions for the mis-selling of payment protection insurance (PPI) and hedging products by another £1 billion ahead of its full-year results in a week.
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by Gavin Lumsden on May 31, 2016 at 08:05