FTSE in-depth: Shareholders hang up on BT

By Etain Lavelle for MailOnline
Updated: 03:30 EDT, 17 September 2010

The fate of Britain's biggest private sector pension fund has unnerved shareholders in phone giant BT.

OIling the machinery: In London there was demand for oil and commodity stocks

Its shares were one of the steepest fallers on the Footsie yesterday, undermined by a downgrade to 'equal weight' by analysts at Morgan Stanley, which harbours concerns over its mammoth pension liabilities.

BT and the Government are at loggerheads over how quickly the £9bn gap in the pension fund will need to be plugged.

Morgan Stanley think the pensions regulator will this Autumn repeat its 'substantial concerns' over BT's plan to tackle the shortfall. Under the broker's nightmare scenario, the watchdog could force BT to slash the deficit within a decade, rather than the 17 years it has already proposed. This would mean BT would have to heavily increase cash payments into the pension fund, which would stymy expansion plans and potentially restricting dividend payouts.

Morgan Stanley is equally concerned about BT's exposure to government contracts. BT shares were down 3% at 140.2p.

But fellow telecoms group Cable & Wireless Worldwide was in demand, jumping 4.5% to 78p, after Goldman Sachs upgraded the stock from 'neutral' to 'buy'. The US broker said that CWW seems well positioned to grow its market share to the high 20s from 19% - and could attract a bidder. "Investor sentiment is low, fears on UK enterprise high and austerity pressures are priced in, which provides an exciting entry point," Goldman said.

Among wider TMT stocks, Pearson, publisher of the Financial Times, was also well bid. Shares in the media group were 10p higher at 1014p after Execution Noble analysts named it the most attractive stock in the European media sector. According to the broker, Pearson is gaining market share and managing the migration to digital learning better than may of its rivals in the education market. Morgan Stanley was equally bullish, pointing out that its US peer McGraw Hill, raised guidance for the higher education market in the US to 8-10% from 5-7% for this year.

A lacklustre session saw the London market close 0.2% lower at 5540.1, while across the pond, Wall Street was also unchanged. A warning that Fedex will miss expectations for the quarter knocked confidence, and even a drop in the number of jobless claims last week failed to rally sentiment.

Back in London, there was demand for oil and commodity stocks, with Royal Dutch/ Shell - 19.5p firmer at 1829.50p - and BP, ahead of the expected sealing of the Macondo well in the Gulf of Mexico. Eurasian Natural Resources Corporation was up 32p at 896.9p after Credit Suisse upgraded it to an ' outperform,' saying its high quality Kazakh asset base remains the core driver - and not the copper assets in the Congo, which usually dominate newsflow.

But inter-dealer broker ICAP shed 33.7% of its value to 437.60p after Panmure Gordon analysts slashed their rating to 'hold' from 'buy' following an uninspiring investor day which provided little visibility on pricing or volumes by business unit. 'A significant pickup in electronic volumes would probably justify becoming constructive again,' they said.

On the second line, the milk producers were under pressure. Robert Wiseman shares plunged 29.5% to 341p after it warned that profits for 2011 will be £7m short due to supermarket price wars. Investec analyst Nicola Mallard put her price target under review following the news - which brought down Dairy Crest, 14.5p off at 361.63p. Dairy Crest also suffered a downgrade to 'hold' by Shore Capital.

BlueBay Asset Management was the top FTSE 250 riser, jumping 24.5p to 345.00p after Credit Suisse lifted its price target to 410p from 370p following figures from the investment group.

Meanwhile, United Business Media was bolstered by the acquisition of Canon Communications, a medical device design and events organiser. Patrick Yau, of KBC Peel Hunt, said the size of the deal will have a meaningful impact on earnings going forward. The shares gained 30.50p to 643.50p.

And Kier Group was up 46p at 1117.00p after Numis lifted pre-tax estimates for the current year to £59m from £52.8m following strong results.

Small cap stocks were set alight by Beowulf Mining's 22% jump to 6.25p after positive drilling results in northern Sweden. The company said it found deeper and wider iron ore deposits than it had been expecting at the Kallak mine. But property group Rok shed 2.7% to 17.8p on reports that the property group is preparing to refinance it debts.