Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a604517

Market Blog: FTSE drifts; G4S plummets on Olympics fiasco

Security group falls to bottom of the FTSE 100 after failing to provide enough security guards for the Olympics.

 
Market Blog: FTSE drifts; G4S plummets on Olympics fiasco

  • IMF cuts global growth forecast from 3.6% to 3.5% for 2012
  • Buckles, G4S boss, comes under pressure over Olympics fiasco
  • G4S shares fall 9% as chief executive prepares to face MPs over Olympics staffing failures
  • Unilever could gain from activist shareholder Bill Ackman's interest in US rival Proctor & Gamble, broker says
  • AIM-listed Clean Air Power surges on hopes it can crack US market
  • Barclays down 3% as former Jerry del Missier prepares to face parliamentary committee
  • Borders & Southern crashes 70% as Falklands well comes up dry

17.15: Security group G4S (GFS.L) remained at the bottom of the FTSE 100 index, down 24.1p, or 8.7%, to 254.6p as the extent of its failure to provide enough security staff at the Olympics unfolded.

The fate of chief executive, Nick Buckles, is hanging in the balance as thousands of army troops and nine police forces have had to be drafted in to make up the shortfall in security personnel for the Games.  

Britain’s FTSE 100 gave up 0.07%, or four points, to 5,662 and the Mid-250 index inched ahead 0.13%, or 31 points, to 11,075.

Tullow Oil (TLW.L) shed 47p, or 3.3%, to £13.86 after it was forced to abandon exploration at a well in Guyana because of safety concerns.

Other stock markets in Europe also remained flat: Germany’s DAX index added 0.13% to 6,566, France's CAC 40 index trimmed 0.03% to 3,180, and the FTSEurofirst 300 index of top European shares took on 0.16% to 1,044.

US markets dip on IMF growth forecast cut

16.15: Markets stateside have started the week on the back foot after the International Monetary Fund (IMF) downgraded its global growth forecast from 3.6% to 3.5%.

The Dow Jones Industrial Average shed 0.2% to 12,751, the Standard & Poor's 500 index lost 0.3% to 1,353, and the Nasdaq Composite index inched up 0.01% to 2,909.

The IMF cited eurozone concerns and slowing emerging market as concerns leading to the cut in forecast development this year.

Investment bank Citigroup also announced net income fell 12% to £1.98 billion in the second quarter. However, shares rose 1.4% on the New York stock exchange as earnings per share came in at 60p per share, beating analyst expectations.

Eurozone weighs on IMF global growth forecast

14.55: The International Monetary Fund (IMF) has cut its global growth forecast from 3.6% to 3.5%, warning that the global economy is facing headwinds from the deepening eurozone crisis and the slowdown in emerging markets.

However, the IMF warned that even its downgraded forecasts could be overoptimistic, as they are predicated on European leaders coming to a resolution on the eurozone debt crisis.

As if to confirm the fears, stateside retail sales figures have also come in worse than expected, down 0.5% compared with a forecast 0.1% rise, in June.

Peter Boockvar, managing director at Miller Tabak & Co, said: ‘Bottom line, headline retail sales are now down three months in a row, due maybe to some give back after the mild winter but also coincides with lacklustre job growth.’

G4S boss comes under pressure over Olympics fiasco

12.45: G4S (GFS.L) shares have extended their decline and have now fallen 9%, or 25p, to 254.25p today, a move that could seal chief executive Nick Buckles' fate.

() shares have extended their decline and have now fallen 9%, or 25p, to 254.25p today, a move that could seal chief executive Nick Buckles' fate.

Although Buckles survived his failure to convince shareholders to back a multibillion-pound rights issue to buy Danish cleaning firm ISS last year, the fiasco over the Olympics security contract looks more serious.

The shares have plunged as analysts have cut their forecasts in response to the £35 million to £50 million hit G4S will take from its failure to provide sufficent guards for the Olympics. There are also concerns about the group's ability to win business from the UK government in future. The government is its biggest customer, providing a fifth of its revenues.

Like a failed banker, Buckles is due to appear before MPs tomorrow to explain what went wrong in his firm's preparations for the games. He also suffered the humiliation of not getting the endorsement of his new chairman John Connolly. Speaking to the Financial Times, Connolly spoke against 'knee-jerk reactions', but failed to express unequivocal support for his chief executive.

Kevin Lapwood, analyst at Seymour Pierce, said it appeared certain that Buckles would 'fall on the sword along with other senior UK management'. He cut his rating to 'hold' from 'buy' and the share price target to 240p from 278.5p, saying that repairing the company's reputation would be 'crucial for the company's future'.

Panmure Gordon and Numis also downgraded the stock to 'hold' from 'buy'. The company is a top-10 holding of the £5.5 billion M&G Global Basics fund managed by Graham French.

Is there upside for Unilever from Ackman's arrrival at P&G?

11.50: News that US household products giant Procter & Gamble could face a challenge from activist shareholder Bill Ackman (pictured) has raised Liberum Capital's hopes for Unilever (ULVR.L), its UK rival.

Bill Ackman's Pershing Square Capital Management has bought a stake in P&G in recent days, raising speculation that he could press for a change in management or more cost-cutting. Shareholders are reportedly unhappy with its chief executive Bob McDonald after a series of profit downgrades. Ackman's track record includes shaking up management Canadian Pacific Railway and retailer JC Penney.

All of which has got Liberum Capital analyst Pablo Zuanic pondering the implications for Unilever. 'We think a more focused better managed P&G is more positive for the global growth potential of Unilever’s categories than an erratic and disruptive P&G. More importantly, the growing likelihood of a pruned P&G, combined with the break up of Kraft and of Sara Lee... should increase the pressure on Unilever to divest a large chunk of its food business.'

Like some of his peers, Zuanic believes the duller performance of Unilever's foods business has overshadowed the better performance of its household products divisions, which are more exposed to emerging markets growth.

Unilever shares have firmed just 2p to £21.44, so the market is not exactly running away with this one. But it is an interesting idea. Unilever, a member of Citywire Top Stocks held by leading UK fund managers Derek Stuart and Thomas Dobell, has fallen 1% so far this year but has rallied 28% over the past five years.

For more details of today's top rising and falling stocks see our FTSE homepage.

Clean Air Power jumps as sales double

11.00: Clean Air Power (CAP.L), the AIM-listed developer of technology that enables engines to run on a mix of gas and diesel, surged 14%, or 1.4p, higher to 12p on revived hopes that it can crack the US market.

The £14 million Lancashire-based company, a top 10 holding in Giles Hargreave’s Marlborough UK Micro Cap Growth fund, said trading in the first six months of the year had been significantly ahead of a year ago.

Clean Air Power announced last month Sainsbury’s had extended an order for its Dual-Fuel™ combustion technology. Today it said first half revenues had risen to £3.9 million from £2.1 million with over 100 systems delivered up from 37 last year. European orders had reached 250 in 2012 and the company had begun to evaluate adapting its product for the US.

In a trading statement it said: ‘The directors believe the low relative cost of natural gas is compelling additional benefit in driving the large and still growing market demand throughout North America for natural gas vehicles. The board looks forward to updating shareholders on the results of the evaluation in due course.’

Seymour Pierce repeated  its ‘buy’ recommendation and 25p target price.

The shares have risen 47% from 7p since the start of the year. Last week Hargreave, a leading smaller company fund manager rated AA by Citywire, told us the shares had fallen back from a high of 16p in April at disappointment at the lack of US news, but that he was holding on.

The FTSE 100 has risen slightly to trade unchanged on the day at 5,665.

Barclays drops 3% ahead of del Missier testimony

10.10: Barclays (BARC.L) fell a further 5p or 3% to 156.5p ahead of an appearance by its former chief operating officer Jerry del Missier at the House of Commons Treasury Select Committee this afternoon.

Del Missier's testimony could be crucial to shedding light on communications between former Barclays chief executive Bob Diamond and Paul Tucker of the Bank of England about the Libor inter bank lending rate at the height of the banking crisis in 2008.

Barclays shares fell on Friday after the New York Federal Reserve bank released emails showing how Barclays staff had expressed their concerns about Libor rate fixing by banks during the crisis.

Other banking shares were also ruffled by a report in the Financial Times that European regulators wanted to raise tier one capital ratios from 7% to 9%. The Daily Telegraph reported that banks could be linked to oil-price manipulation too, citing a report last month by the International Organisation of Securities Commission.

HSBC (HSBA.L), which faces a report by a US Senate panel tomorrow over its alleged involvement in money laundering, traded at 556.7p, 2.2p or 0.4% lower. Lloyds (LLOY.L) 0.9% or 0.28p at 29.9.

RBS (RBS.L) shed a penny or 0.5% to 205p amid reports private equity groups were lining up to bid for Direct Line, the insurance subsidiary that the banking was aiming to float.

The FTSE 100 has fallen 11 points or 0.2% lower to 5,654.

Borders & Southern crashes on Falklands blow

09.00: Borders & Southern Petroleum (BSTH.L) shares have plunged 70% to a three-year low after disappointing drilling news from the Falkland Islands.

The AIM-listed company said its Stebbing well had found evidence of gas, but not in commercial quantities, sending its shares down 43.5p to 18.75p.

The shares, which are held by the Ignis UK Focus fund managed by Mark Holden, have been on the slide since they soared to 131p in April on hopes it had discovered oil in its Darwin prospect off the south coast of the Falklands. Shortly afterwards Borders announced a significant discovery of gas condensate, which is harder to extract than oil.

The Falklands' natural resources have become a subject of recent tensions with Argentina which claims sovereignty over the islands.

G4S shares slide on Olympics profits warning 

08.30: G4S (GFS.L) shares slide a further 7% as investors respond to the £35 million to £50 million losses the security group expects to incur this year from its Olympic Games contract.

The shares, down 19.6p at 259.5p, have fallen nearly 11% since Thursday, when news broke that the company was unable to supply all the guards it was meant to, forcing the government to bring in 3,500 troops.

The company made £279 million in pre-tax profits last year. Chief executive Nick Buckles is under pressure to explain why shareholders were told in May that the Olympic contract was going well when emails obtained by ITV apparently show the company was aware of the problems in April.

In a statement Buckles expressed his disappointment, and said the company was ‘working flat out around the clock to resolve the situation’.

National Grid (NG.L) falls 2% after clashing with its regulator, Ofgem, over £22 billion investment plans to upgrade the UK's electricity and gas networks.

Ofgem has said it will reduce power companies' request for funding by 20%. National Grid said Ofgem's proposals were flawed. 'We believe that these initial proposals will not appropriately incentivise the essential investments necessary to provide safe, reliable networks for the UK consumer and avoid delays to the achievement of the UK's environmental targets,' it said in a statement.

National Grid shares slipped 14p to 679p.

The FTSE 100 opened 2.5 points lower at 5,663. Investors are looking to testimony from US Federal Reserve chairman Ben Bernanke to Congress on Tuesday and a meeting of eurozone ministers on Friday to determine the broad direction for markets.

Overnight, Asian markets moved higher after premier Wen Jiabao of China said the country would take further steps to support its economic growth.

Read the overnight market report.

16 comments so far. Why not have your say?

Mr Mr

Jul 16, 2012 at 14:05

I sense another bailout looming, as due to privatisation G4S are probably vital to national security. Stupid governments.

report this

Jeremy Bosk

Jul 16, 2012 at 15:52

Stupid Ofgem. National Grid should provide a list of areas of the country in which it can no longer afford to guarantee electricity supply. It should pick areas with a concentration of Lib-Dem MPs. This will maximise pressure on the government but not annoy the Tories too much. The Lib-Dems don't matter as they will have no seats after 2015.

report this

Philmo

Jul 16, 2012 at 17:23

Why is it that HMG contracts always get in a mess before some corrective action is initiated by senior contractor staff, or even the client?

Reading between the lines adequate calibre applicants were just not there!

And if we have the right calibre staff in MoD resources already trained and budgeted, why on earth is Lord Coe recruiting via a contractor?

How about it Lord C?

report this

Jeremy Bosk

Jul 16, 2012 at 19:46

Tories like Cameron and Blair believe as an article of faith that private is good and state is bad. No evidence exists to prove this, so no evidence will alter their views. Coe is a Tory: so blind and deaf to reason.

NB I am aware that Blair, Cameron and even Clegg nominally belong to different parties but those are no more than factions of one single Tory Party.

report this

Raj Thamotheram

Jul 16, 2012 at 19:54

Good to see the analysts get ahead of the issues at G4S with their shift after the event from "hold" to "buy".

It would be good to hear from any who have it on a "sell" or arent there any?

Or is it another re-run of the behavioural bias as described by leading behaviour finance specialist Hersh Shefrin in the BP case

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1769213

report this

Geoff Harrop

Jul 16, 2012 at 21:06

G4s boss only gets £800k a year so what can you expect?

report this

Graham D-C

Jul 17, 2012 at 07:19

If OFGEM plans to reduce energy companies request for funding by 20% means less unsightly wind turbines that can only operate in certain weather conditions- unreliable expensive power source, noisy and harmful to the environment , I am all for it.

report this

Jeremy Bosk

Jul 17, 2012 at 10:06

Graham D-C

So long as it is only you that freezes in winter when the power goes off, nobody cares. So long as you are the only patient that dies on the operating table when the lights go out, nobody cares.

Unfortunately, the rest of us will get caught up in your idiocy. This is not about wind turbines. The National Grid is about electricity distribution, not generation: pylons, power cables and sub-stations.

report this

Philmo

Jul 17, 2012 at 10:28

It would be interesting to see the split of proposed investment between gas and electricity distribution.

Why is the need a sudden one?

Surely asset maintenance is an almost steady state activity, unless either someone's been sitting on their hands, or there's an ulterior motive?

report this

Graham D-C

Jul 17, 2012 at 13:58

Ah Mr Bosk, still smarting from the drubbing I gave you for your witness statements ', which changed like sand shifting in the desert. You, clearly did not read the first word of my pos, which was "IF", A small word, but one many trip over as they rush to put the put in. Ho Ho,

report this

Jeremy Bosk

Jul 18, 2012 at 18:09

Philmo

National Grid publishes regular updates on its investment plans as the economy changes and new information becomes available. Examples of plan changing events might be the recently quantified population growth in England and Wales and the recent availability of shale oil and gas which has thrown energy markets into turmoil. Alternative energy reverses the traditional need for high voltage power lines from huge power stations to population centres and then distribution via sub stations. Wind farms and solar panels feed into the grid in a much more dispersed way.

Energy prices are highly variable due to technical developments, general economic demand and changing supply. So the economics of gas versus electricity, coal versus nuclear or whatever change all the time. Government policy on such things as nuclear power or solar power feed in tariffs is unstable. So the grid is not static and simply to be maintained like a motorway. Funding costs are also highly unpredictable unless locked in by long term loans.

Ofgem periodically issues edicts that disrupt National Grid's plans which then have to be re-written.

report this

Philmo

Jul 18, 2012 at 19:26

It's OK JB - this isn't a Select Committee.

I'm not sure what new information you are attempting to bring to the party?

NG is [or should be] as aware as everyone else in the energy game re the changing face of energy source location. They have the models at their fingertips, verified by continually polled meter data. Where's the problem?

With assessment of gas assets I suspect!

Do you have any data on the investment split?

report this

Jeremy Bosk

Jul 18, 2012 at 20:34

Philmo

You asked "why is the need a sudden one?". I was listing reasons why the planning process is uncertain and therefore liable to sudden change despite National Grid's best efforts.

On the question of the split, NG website has a search function:

http://www.nationalgrid.com/uk/search.htm?q=investment&t=60

I will leave you to refine the search and trawl through the results.

report this

Philmo

Jul 18, 2012 at 22:27

But JB, all the processes you mention are slow acting:

Population development

Shale technology and deployment

Nuclear development

and the fact that wind and solar are dispersed surely reduces distribution stress.

The highest risk of short term change must be from a possible U turn in respect of nuclear policy! And I guess there's a certain amount of brink politics in nuclear site selection.

Thanks for the link, certainly eye catching graphics.

report this

Jeremy Bosk

Jul 19, 2012 at 02:15

Philmo

NG plans decades into the future.

The decennial census results came out last week. Previously what the population and therefore consumer electricity demand was or how it was likely to grow were very rough guesstimates.

On a scale of decades, shale oil and gas are recent developments and have had drastic effects on the price of energy in general and coal in particular in two or three years.

Nuclear developments can turn on a dime or on the whim of some panicky politician. The Fukushima debacle had a sudden effect on Japanese and German nuclear construction which in turn made the French and German utilities reluctant to make any long term investment in the UK.

The sudden decision to cut the feed in tariff on solar power has turned the economics of that energy source upside down.

Add this to the random gyrations of North Sea oil taxation and there is a general reluctance to make long term investments in a politically risky country such as the UK.

The point about a distributed generating capacity is that power has to be fed from the periphery to the centre which is the reverse of the situation with conventional, large, centralised power stations. The cabling required is different. It is not like driving up and down a motorway which is essentially the same in both directions.

http://en.wikipedia.org/wiki/Distributed_generation

Ofgem is just an occasional, sometimes expensive, disruption to planning.

report this

Philmo

Jul 19, 2012 at 09:20

JB

Nothing of what you post is technically fraught, groundbreaking, radical, beyond anticipation or surprising.

Any half decent energy business would have all the factors raised featured in its risk model and routinely run relevant sensitivity tests.

Re parallels with road traffic distribution, I suspect highways investment suffers much more from unplanned hiccoughs as the demand lines are very much commercial development and politically lead and I've yet to meet a town planner who understands the word "proactive".

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Fund managers from Standard Life Investments quizzed on investment trusts


What can SLI bring to the table for those who want to put their money into investment trusts?

More about this:

Look up the funds

  • Ignis UK Focus Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Marlborough UK Micro Cap Growth
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • M&G Global Basics A Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the shares

  • G4S PLC (GFS.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • National Grid PLC (NG.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Borders and Southern Petroleum PLC (BSTH.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Barclays PLC (BARC.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Lloyds Banking Group PLC (LLOY.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Royal Bank of Scotland Group PLC (RBS.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • HSBC Holdings PLC (HSBA.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Clean Air Power Ltd (CAPC.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Unilever PLC (ULVR.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Tullow Oil PLC (TLW.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • Mark Holden
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Giles Hargreave
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Derek Stuart
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Thomas Dobell
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Graham French
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

What others are saying

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Read more...

10 things you need to know about retail bonds

by Daniel Grote on Jul 31, 2014 at 07:00

Sorry, this link is not
quite ready yet