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Vodafone surges on Verizon talks, lifting relieved FTSE
by Gavin Lumsden on Aug 29, 2013 at 12:50
(Update) Markets rebounded as the threat of an imminent US-led air strike on Syria retreated and Vodafone confirmed it was in talks to sell its stake in Verizon Wireless.
Vodafone eyes big payout
Vodafone (VOD.L) jumped more than 8% or 15.7p to 205p after the mobile phone group said it was in advanced talks with Verizon Communications to sell its 45% stake in their US joint venture Verizon Wireless for about $130 billion (£83.75 billion). This is an increase on the $100 billion figure reported when talks between the two companies first surfaced in April. Shares in the telecom giant have risen by a third this year, valuing the group at just over £100 billion, although this is the first time the price has broken past 200p.
Such a big disposal would enable Vodafone to repay some debt and pay special dividends to shareholders. Helal Miah of The Share Centre said while the short-term prospect was attractive, longer term the stock may become less exciting. 'Verizone Wireless is a key contributor to Vodafone's profits and whilst dividends could be boosted in the shorter term, investors should expect lower yields in the longer term. Vodafone's business would also have a bigger European focus and challenges in the region have continued to impact figures,' said Miah.
At 5.4%, Vodafone is one of the highest yielding shares in the FTSE 100. However, star income fund manager Neil Woodford sold out of the stock earlier this year over concern at the weakness in its European business and the lack of cash flow underpinning its dividend. Robin Hepworth retains it as a top 10 holding in the Ecclesiastical Higher Income fund, however, and it remains popular with other income investors.
Vodafone lifts FTSE
The surge in Vodafone shares helped push the FTSE 100 index 30 points or 0.5% higher to 6,460 reversing some of this week’s falls caused by uncertainty in the Middle East.
The news lifted European telecom stocks, boosting Europe’s stocks markets which also took heart from an encouraging turnaround in results from Carrefour, France’s largest retailer. The French CAC 40 index gained 0.2% to 3,969 and Germany’s DAX 30 rose 0.4% to 8,189.
Oil price not yet a problem
Oil prices retreated from their recent spike as a delay in a military strike on Syria in response to last week’s chemical attacks calmed markets. Brent crude dropped towards $115 a barrel while US crude dipped below $110. Oil shares dipped with Tullow Oil (TLW.L) and Royal Dutch Shell (RDSb.L) trading around 0.8% lower. However, the fall in oil relieved the pressure on airlines with EasyJet (EZJ.L) nearly 3% higher at £12.46 and British Airways owner International Consolidated Airlines Group (ICAG.L) gaining 2.8% at 295p.
Keith Wade, chief economist at Schroders, said the crucial question was whether the rise in oil prices would derail the global economic recovery, as it did before the first Gulf war in 1990-91. While not wishing to appear complacent, he suggested that the likely intervention in Syria would not be as big as the earlier conflicts in Iraq. 'Should Brent crude rise another $10/barrel to $125 there would be more of a problem for global activity, but Syria is not critical enough to global energy supply to necessarily warrant this.'
Meanwhile, gold shed $10.6 or 0.8% to $1,408 an ounce as investor demand for the safe haven waned.
Yields on British government bonds rose with the benchmark 10-year gilt hitting a two-year high of 2.827% as investors responded to the calmer outlook for shares and sold the bonds.
Gilt prices also fell in response to yesterday’s speech by Bank of England Mark Carney in which he relaxed the amount of safe assets banks must hold.
Serco (SRP.L) plunged 62.6p or 10.3% to 543.9p after the outsourcing group said it was working with the government to fix any wrongdoing uncovered from reviews into its contracts, which were sparked by faults in its handling of electronic tagging and prisoner escort services. The group reported adjusted half-year profits had risen to £127.1 million from £114.5 million a year ago.
Motor insurer Admiral Group (ADML.L) fell 37p or 2.9% to £12.53 despite beating analyst forecasts with a 6% increase in first half profits driven by a focus on profit over volume in its main UK market.
Pearson (PSON.L) shed 22p or 1.7% to £12.94 as analysts at Deutsche bank cut their recommendation for the Financial Times publisher to 'sell' from 'hold' and reduced their price target to £10 from £12.25p per share.
Embattled security group G4S (GFS.L) fell a further 1.4% to 249p after yesterday's move to raise £348 million from leading shareholders.
WPP and Melrose advance
WPP (WPP.L) leaped 46p or 3.9% to £12.26 as it forecast a ‘slight increase’ in its full-year forecast after a 5% rise in like-for-like revenues in July. It is set to be overtaken as the world’s largest advertising agency by the merger of Publicis and Omnicom.
Melrose Industries (MRON.L) gained 10.6p or 3.7% to 295p after the engineering turnround specialist said last year's acquisition of Elster, a German manufacturer of gas, water and electricity meters, more than doubled first half revenues to £1.02 billion compared to a year ago. It whetted investors' appetite for the shares by expressing its interest in doing another large deal once it has sold Crosby, its US lifting unit, later this year. Melrose is a big holding of top funds such as Cazenove UK Opportunities , run by Julie Dean, and Marlborough Special Situations run by Citywire A-rated Giles Hargreave.
Soco hits the dividend trail
Soco International (SIA.L) added 14p or 3.6% to 400p after the west Africa and Vietnam focused oil exploration group unveiled its first dividend payout to shareholders. It is paying 40p per share to investors and will target a return of 50% of free cash flow in future.
Stagecoach (SGC.L) motored 3.6% or 11.1p higher to 318.5p after the train and coach group said it was on track to its targets after strong recent trading.
Evraz (EVRE.L) advanced 6.7p or 5.4% to 131.4p after Russia’s largest steelmaker’s first half net loss of $122 million proved to be no worse than analyst expectations and a result of weak steel prices.
Cape (CIU.L) slipped 20.75p or 7.4% to 260p after industrial services group reported ‘subdued’ level of orders – down to £239 million in first half from £363 million a year ago.
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- Vodafone Group PLC (VOD.L)
- Serco Group PLC (SRP.L)
- Admiral Group PLC (ADML.L)
- Pearson PLC (PSON.L)
- Tullow Oil PLC (TLW.L)
- Royal Dutch Shell PLC (RDSb.L)
- WPP PLC (WPP.L)
- Melrose Industries PLC (MRON.L)
- easyJet plc (EZJ.L)
- International Consolidated Airlines Group SA (ICAG.L)
- Stagecoach Group PLC (SGC.L)
- EVRAZ plc (EVRE.L)
- Cape PLC (CIU.L)
- SOCO International PLC (SIA.L)
- G4S PLC (GFS.L)
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