A damaging profits warning from medical technology company ConvaTec Group (CTEC) failed to dent the FTSE 100 while the pound continued to trade firmly on expectations of a rise in interest rates next month.
Shares in ConvaTec, which only floated a year ago, slumped 23%, or 64p, to 215p after supply problems forced the company to slash revenue growth forecasts.
The supply issues mainly affect its biggest division in advanced wound care, which has shifted its manufacturing base from the US to the Dominican Republic and been affected by the recent spate of hurricanes. These problems are expected to be resolved by the end of the fourth quarter, the company said in a third quarter update.
Supply constraints also hit its ostomy care unit for digestive and urinary treatments, leading to a rising backlog and some loss of orders. The company aims to solve these by the first half of next year.
As a result, the company now expects full-year organic revenue growth to fall in the 1-2% range, down from its previous forecast of over 4%.
‘With growth expectations clearly unravelling and the shares now trading on 18.5 times full-year 2017 EV/EBITDA [embedded value/earnings] forecast, we continue to see significant downside for the shares and reduce our target price to 220p to reflect the lower growth trajectory,’ said Paul Cuddon of Numis Securities, who cut his rating to ‘sell’ from ‘reduce’.
Oil and sterling rise
Positive manufacturing data from China propped up the FTSE as miners took the lead. Antofagasta (ANTO) rose 2.9% or 29p to £10.44, followed by Rio Tinto (RIO) and BHP Billiton (BLT) notching up gains of around 2.3%. The FTSE 100 edged over four points to 7,539.
Oil prices jumped with Brent crude futures up 82 cents to $57.99 a barrel after Iraqi forces took the city of Kirkuk from Kurdish fighters, raising concerns that oil production could be disrupted. Kirkuk accounts for 200,000 barrels per day of the 600,000 produced in the area controlled by the Kurdish Regional Government, although an Iraqi oil ministry official told Reuters that production was ‘proceeding normally’.
On currency markets the pound rose to $1.33 to the dollar and also against the euro, which traded at 88.62p, as traders anticipated that a rise in tomorrow’s UK inflation figures will force the Bank of England to raise interest rates next month. Employment data on Wednesday and retail sales figures on Thursday will also be closely watched for the state of the economy as Brexit unfolds.
The pound has enjoyed a good week despite the uncertainty around the UK’s divorce talks with Europe, which have prompted prime minister Theresa May and Brexit minister David Davis to rush to Brussels today for emergency talks ahead of discussions with European governments this week.
Austria shifts to right
The euro was under pressure as Catalonia’s leader Carles Puigdemont failed to spell out his stance on independence before a deadline set by Spain’s prime minister Mariaon Rajoy.
There was also nervousness at the election result in Austria which is set to propel Sebastian Kurz, the 31-year-old leader of the conservative People’s Party into power with the support of the far-right Freedom Party.
Neil Dwane, global strategist at Allianz Global Investors, said the result in Austria would not affect financial markets in the short term although the continuing rise of populism and anti-immigration policies could be significant longer term.
‘The question is whether these latest results will give new momentum to the movement elsewhere in Europe. The reason this matters to investors is because if populist trends turn into policy, it could create headwinds for growth and markets: closed borders can hurt economic growth, and protectionism can cause inflation to rise,’ he said.