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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.
- 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'.
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.
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.
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- G4S PLC (GFS.L)
- National Grid PLC (NG.L)
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- Barclays PLC (BARC.L)
- Lloyds Banking Group PLC (LLOY.L)
- Royal Bank of Scotland Group PLC (RBS.L)
- HSBC Holdings PLC (HSBA.L)
- Clean Air Power Ltd (CAPC.L)
- Unilever PLC (ULVR.L)
- Tullow Oil PLC (TLW.L)
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