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BAE falls hard as global markets fret over China data

by Chris Marshall on Feb 20, 2014 at 10:09

BAE falls hard as global markets fret over China data

A barrage of disappointing economic and corporate reports triggered selling on European stock markets on Thursday morning, with Britain's FTSE 100 following indices in Asia and the US lower.

Recent strong share price gains have meant investors are punishing companies that don’t deliver forecast-beating results. This morning neither BAE Systems  (BAES.L) nor Rexam (REX.L) could please.

Markets are also on edge about the health of economies including China, so today’s news that the country’s manufacturing slowed further in February alarmed punters. HSBC’s preliminary reading of manufacturing activity (PMI) in February measured 48.3 (below 50 signals contraction) against a final reading of 49.5 in January.

Economists said that even though the timing of China’s Lunar New Year would have distorted these figures, there was still cause for concern. ‘Today's downbeat PMI suggests that conditions in the manufacturing sector continue to deteriorate,’ commented Julian Evans-Pritchard of Capital Economics.

Expectations are much lower for the stumbling eurozone economy, but new data showing a slight slowdown weighed on stocks nonetheless. The eurozone PMI, like China an early ‘flash’ reading, came in at 52.7 for February, down from 52.9 in January. That’s a two-month low, but still means the currency bloc is experiencing its strongest run of growth since the first half of 2011.

BAE biggest loser

Britain’s FTSE 100 fell 0.6% to 6,760, roughly in line with declines across Europe. Mining shares took a hit after the Chinese factory data, but BAE Systems was by far the biggest loser of the day.

The defence contractor in part cited ‘continuing US budget pressures’ as it told shareholders earnings per share would likely fall by approximately 5% to 10% in 2014, compared to 2013.

Shares tumbled 9.1% to 396p. BAE did however raise its full-year dividend by 3% to 20.1p per share and report a 3% increase in 2013 profits. The news comes after BAE announced it had finally agreed pricing on its long-awaited deal to sell Eurofighter Typhoon jets to Saudi Arabia.

Analysts said the impact of BAE’s results on the stock would be short term. Writing before the market opened, Andy Chambers, an analyst at Cantor Fitzgerald, said the share would likely be under pressure despite ‘yesterday’s very positive news on Saudi’ and the support provided to the stock by ‘yield and ongoing share buy-backs’.

Rexam similarly provided a dividend and profit increases, which were offset by weak guidance for shareholders. The consumer packaging company delivered a 14% rise in its total dividend to 17.4p and a 6% rise in 2013 pre-tax profits.

However investors were irked by chief executive Graham Chipchase’s guidance: ‘In 2014, despite an uncertain macroeconomic environment and some continued cost volatility, we expect to make further progress on a constant currency basis.’ Shares fell nearly 5% to 500p.

Offsetting the bad news were gains for utility companies after British Gas owner Centrica (CNA.L) reported a small fall in profits for 2013 to £2.7 billion from £2.74 billion. Shares in the group, which have fallen nearly 19% over the past six months, rose 0.5% to 315p after a fall earlier in the week. SSE (SSE.L) shares rose 0.6%.

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