Spiralling MicroFocus is week's big mover

By Graeme Dickson
Updated: 13:05 EDT, 18 August 2010

The FTSE 100 managed to muster a gain of two per cent in the last week to close at 5350, buoyed by strong corporate earnings albeit weak economic data seems to be placing a lid on how far equities can run in the short-term.

So which stock has made the biggest move this week and which stock should you keep your eye on?

Big mover of the week: the inside track

The worst performing stock of the week was enterprise application management solutions business MicroFocus (MCRO), after the company guided the market lower on its internal forecasts.

It believes it will grow on a low single digit earnings per share basis, compared to its previous guidance of mid single digits.

The stock was slammed by traders. By the close of play yesterday (Tuesday), the stock had lost in excess of 33 per cent in value since I last week's column. It closed at 277p.

It's unusual for a stock to dive so much based on a relatively small movement in earnings per share forecasts. I can only use guesswork to fathom why it's happened to MicroFocus. Possibly, investors had been overly bullish previously, with the company in the habit of delivering on market expectations.

The term 'over-owned' seems a bit odd to use, but when everyone seems to own the same stock, a hint of bad news can bring out a disproportionate amount of sellers.

Yesterday, directors were buying shares in the company which isn't a bad sign. I think the market's over reaction is yet again overdone on MicroFocus. But then again, I thought the same when it previously announced its preliminary results on 24 June.

Expect a bounce in the stock anytime soon, but it may take a long time to get back to its previous highs.

Keep your eye on...

Construction/support services company Carillion (CLLN). On Thursday 26 August the company is scheduled to release its interim results.

Public spending: The company is vulnerable to swings in spending

The company is vulnerable to swings in public spending. With the recent austerity measures as set out in the emergency budget, Carillion could be feeling the pinch that some support services, such as the embattled Connaught (CNT), have experienced.

The stock trades on a price to earnings ratio of less than nine, has a sound balance sheet and has a 4.8 per cent dividend yield - it should expect relative stability in its share price.

However, I think sentiment in the sector is very poor and the market is possibly pricing in some form of warning, judging by the way the share performance since mid-April. Avoid for now, despite the positive news that it has extended the £200 million contract with EDF Energy for a further five years.

Highlights and gossip from the week:

• On Thursday the FTSE put on 0.4 per cent to close at 5266. The biggest blue-chip riser was British Gas supplier Centrica (CNA), up 3.3 per cent at 330.1p after it announced plans to acquire natural gas assets from Suncor Energy in Alberta, Canada for C$375 million (£229 million) in cash.

• Rumours continued to swirl that base metal miner Vedanta Resources (VED) was in talks to buy some assets or an equity stake in Cairn Energy (CNE), with the former down 7.5 per cent at 2181p.

• Banknote printer De la Rue (DLAR) dropped 10.4 per cent at 711.5p on news that chief executive James Hussey resigned, after quality and production irregularities at one of the firm's paper production facilities.

• The blue chip index managed to make further inroads in its recovery on Friday, by gaining a 0.18 per cent at 5275. Insurance giant Aviva (AV.) put on 5.4 per cent at 387.4p after it revealed that Royal & Sun Alliance (RSA) made an approach last month to buy Aviva's general insurance operations.

• Vedanta Resources continued to move downwards on Friday with a fall of 5.96 per cent to 2051p on reports that he firm is to buy a 51 per cent stake in Cairn India.

• The FTSE had barely changed on Monday, although Cairn Energy and Vedanta Resources were the best performers of the day up 5.3 per cent at 493.20p and up 4.87 per cent at 2153p respectively, after the two formally announced a deal to the market.

• The FTSE had a good day yesterday, gaining 1.4 per cent at 5350. North Sea oil explorer & producer Enquest (ENQ) was one of the best performers in the FTSE 350 with a 6.5 per cent gain at 119.3 p. It reported a surge in its interim profits, increased its full year production guidance and said it looks forward to continuing growth.

• Lonmin (LMI) was the biggest FTSE 100 riser, up 5.9 per cent on higher platinum prices. Other miners were also up on a commodity spike except BHP Billiton (BLT) after it confirmed it had made a $ 38 billion (£24.5 billion) takeover approach for Canada's Potash Corporation, the world's largest producer of fertiliser. The offer was rejected.

• Ashtead (AHT), the construction rental equipment business rallied 5.5 per cent to 94.654 p ahead of the ex-dividend date (today) as well as bid-rumours resurfacing.