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Osborne gives house builders a boost as FTSE rises
- FTSE gains on stimulus hopes
- Miners and house builders among biggest gainers on UK market
- Phoenix IT shares tumble 34% after an accounting scandal
- Analysts cheer Cupid as growth in new markets hits 122%
- ARM Holdings warns of chip slowdown in second half
15.56: European markets remain higher on this first day in September, buoyed again by hopes of action from central banks after weak manufacturing data from China, with the Labor Day holiday keeping US markets closed.
Miners are leading the FTSE 100 higher, with Fresnillo (FRES.L) up 3.8% to £16.21, Vedanta (VED.L) 2.7% higher at 809p and Kazakhmys (KAZ.L) rising 2.2% to 606p. In Europe the Eurofirst 300 index is 0.5% higher, while the euro is up 0.1% at $1.2577. Commodities are also making gains, with Brent crude futures 0.4% higher at $115.
Investors are looking ahead to a key policy decision from the European Central Bank this week – where more details of a bond-buying programme could be announced – as well as US jobs data in the form of the market-moving non-farm payrolls report on Friday.
The UK’s mid-cap index is showing the same gains as the blue chip index, up 0.6% to 11,486. House builders feature strongly on the FTSE 250 leader board on an upbeat sector note from Panmure Gordon and after chancellor George Osborne yesterday announced a string of measures that could speed up planning decisions and encourage development of Green Belt land.
Manufacturing PMI bounces back in August
12.00: There has been some reassuring news for the government on the manufacturing front this morning. The Markit/CIPS manufacturing purchasing managers' index (PMI) recovered to a four-month high of 49.5 in August after being revised down to 45.2 in July, its lowest level in over three years.
Philip Rush, an economist at Nomura, said aggressive swings in the data made analysis difficult, and reflected an underlying lack of momentum in the sector.
‘Putting aside that critique of the [economist] profession in current circumstances, we can perhaps still take comfort that the weakness from July was not the start of a precipitous decline. New orders (domestically and for exports) reversed their previous sharp decline to return close to the ‘no-change’ 50 threshold. In doing so, output and employment both stabilised. Moreover, driven by the rebound in commodity prices, input price pressures were also reported to have recovered.
‘So abstracting from all the noise, all we can really say with confidence is that the economy is going nowhere, but it is doing it fast.’
Services PMI data will be issued on Wednesday as the Bank of England’s MPC starts its monthly two-day meeting to discuss interest rates and the economy.
On currency markets the pound traded up at $1.5890 against the dollar.
The FTSE 100 was trading 33 points up at 5,744. The Euronext 100 was steady, up four points at 654.
Accounting scandal wipes a third off Phoenix IT shares
10.35: Shares in Phoenix IT (PNX.L) have tumbled 71.6p, or 34%, to 139p after an accounting scandal hits the Northampton-based computer services provider.
Phoenix will write off £14 million of net asset value after finding that certain control processes were ‘repeatedly and deliberately circumvented’ for a number of accounting periods at its West Yorkshire subsidiary Servo Limited.
It also warned that full-year earnings (before interest, tax, depreciation and amortisation) will fall between £38 million-£44 million rather than the £46 million to £49 million that investors were expecting.
A manager at Servo's Birstall operations has been suspended following the discovery, which followed a reorganisation of the group's finance team by new finance director Jane Aikman. Phoenix IT bought Servo in 2006.
The share price fall leaves Phoenix valued at just over £100 million. Analysts at Panmure said the group was now a potential bid target, valued at just over nine times earnings.
In a lucky move, Citywire Selection fund manager Daniel Nickols sold out of the stock in the Old Mutual UK Select Smaller Companies fund earlier in the year amid concerns about the possible impact of economic headwinds on returns. Leading shareholders include Aberforth Partners, with nearly 16%, and Herald Investment Management with over 5%.
Former chief executive Nick Robinson, who stepped down this summer after 18 years, holds over 6% of the shares.
Analysts enamoured with Cupid results
09.50: Shares in online dating agency Cupid (CUP.L) shed 2p, or 0.96%, to 205p as revenues increased by 51% in the first half of the year, up to £38.6 million compared with £25.5 million in the same period of 2011.
Stellar growth of 122% was recorded in its new markets, which include the US, Canada and continental Europe. Revenues in those markets increased to £22.2 million from £10 million last year after the group embarked on a marketing campaign.
Excitement about potential business growth in the US wooed analysts. Ivor Jones, at Numis Securities, said: ‘Once again Cupid has emphasised the opportunity in the US. Management estimate a 2% market share in the first half of 2012, up from almost nothing a year ago. Cupid has "increasing confidence" it can "capture a significant portion of [the US] market in the next few years".
‘A 10% share would imply £80 million of revenue and, perhaps, £40 million of earnings before interest and taxes from the US alone carried forward on the £16.1 million we forecast from the group for full-year 2012. This opportunity, and those in several other markets, are why we remain in love with Cupid.’
ARM warns of chip slowdown; FTSE bounces back
08.50: ARM Holdings (ARM.L) slid 12.5p, or 2.2%, to 561p after announcing it is to cut staffing costs ahead of an expected slowdown in chip sales in the second half of 2012.
The company makes chips for Apple iPhones and other devices and receives a royalty payment when an item containing one of its chips is sold.
However, depressed smartphone sales could hit revenues, and the group is braced for a further slowdown in the second half of the year.
In an interview with the Financial Times chief executive Warren East said: ‘Many of the chip companies are indicating that they are not expecting an uplift and mathematically that will hit us.’
As a result the group is cutting recruitment and hiring graduates to reduce costs.
East added: ‘We would have liked to do more this year but the uncertainty of the business climate has made us hold off. We are also tilting slightly from hiring more experienced people towards hiring graduates, who tend to be a bit cheaper.'
Pressure on chip prices is also a concern and Deutsche Bank downgraded the stock from ‘hold’ to ‘sell’ and reduced its target price from 465p, to 400p.
Kai Korschelt, analyst at Deutsche Bank, commented: ‘Despite secular EPS growth drivers, we believe ARM's high valuation will come under pressure as falling smartphone chip prices impact royalty growth.’
The business is a firm favourite of Citywire A-rated manager Stuart O’Gorman in the Henderson Global Technology fund and a top holding in Citywire AA-rated manager Giles Hargreave’s Marlborough UK Leading Companies fund.
Despite a weak start the market bounced back, with the FTSE 100 adding 0.69%, or 39 points, to 5,751 and the Mid-250 index taking on 0.8%, or 90 points, to 11,500.
Chinese slowdown dents market confidence
08.09: European stock markets have started September slightly lower after a survey showed that China’s manufacturing activity fell to a nine month low in August, with little stimulus expected from the Chinese authorities in response.
The official purchasing managers (PMI) index dropped to 49.2 in August from 50.1 in July; a reading below 50 indicates contraction. This figure was worse than expected. Additionally, the final HSBC Chinse PMI fell to 47.6 in August from 49.3 in July.
Noting that monetary policy measures taken in China recently had ‘failed to instill confidence’, economists at ANZ downgraded their annual China GDP forecast to 7.8% from 8.2%, ‘with a further downside bias’.
Yao Wei of Societe Generale said the official PMI reading suggested ‘wide-spread weakness in China's manufacturing sector’.
‘With no more concrete easing moves in the past month, the authorities seem to be running a risky policy experiment to see how well the economy can hold up without any big dose of stimuli. Although we think it is a good thing that the pain threshold of Beijing is quite high, this approach is prone to large downside risks in the short term.’
Jun Ma of Deutsche Bank added that he doesn’t ‘expect any major policy surprises in the remainder of this year’.
‘Several modest actions -- such as one more rate cut, 1-2 more RRR cuts, some modest tax cuts for small/micro firms, an increase in tax rebate for selected exporters, and an interest subsidy for consumer credit -- may be taken by the government but the impact of these policies on the broader economy will be quite limited. ‘
The FTSE 100 is 0.1% lower at 5706. The Eurofirst 300 is off 0.2%
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