FTSE in-depth: Nervous selling sinks Xchanging

By Geoff Foster for MailOnline
Updated: 03:57 EDT, 12 November 2010

Shares of outsourcing provider Xchanging, sponsors of the Oxford and Cambridge Boat Race, were in danger of sinking without trace as persistent nervous selling left the close a further 13.1p lower at 113.1p.

Geoff Foster: As Wall Street opened with a 90-point fall the Footsie took a small backward step

It takes the fall since Tuesday's Investor Day to 16%, which has sparked fears that another profits warning could be on the horizon.

In early August the company warned that revenues would be 'slightly lower' this year as clients postponed big contracts amid uncertainty about the general economic outlook. As the share price drifted, chief executive David Andrew attempted to stop the rot by forking out a hefty £926,785 for 735,000 shares at an average price of 128p.

The board also took the unusual step of summoning investors and analysts to a conference to reassure them that everything in the corporate garden was rosy, and that its accounts were ship-shape and Bristol fashion.

Judging by the share price performance since, the message fell on deaf ears.

Analysts still believe management paid far too much (£83m and 27 times earnings) for Cambridge Solutions, a business that made a statutory loss in 2009. Super bear Matthew Earl at broker Matrix remains a seller and has a target price of 79p. He aired numerous concerns about the group, including its weak cashflow, imprudent accounting, banking covenant risk and customer risk.

Xchanging's weak performance is drawing nervous glances from investors.

As Wall Street opened with a 90-point fall following tech giant Cisco Systems' overnight warning that profits will miss analysts expectations, the Footsie took a small backward step. It closed 1.71 points off at 5,815.2 but the FTSE 250 shed 95.45 points to 10,899.07.

Heavyweight mining stocks helped the Footsie behave itself after the copper price climbed to an all-time high of $8,966 a metric ton after industrial production in China grew 13% in October. Antofagasta added 67p at 1472p, Fresnillo 64p to 1460p, Kazakhmys 57p to 1551p and Xstrata 50.5p to 1419p.

Credit Suisse advised clients to take profits at ICap, 20.4p easier at 473.6p. Even though it raised its target price for the inter-dealer broking giant to 530p from 485p, the broker believes new growth areas will take time to add to the group's earnings power.

Takeover hopes lifted beleaguered fund manager Gartmore 5.3p to 115.5p. Pest control group Rentokil rose 3.7p to 94.25p as private equity bid gossip refused to lie down.

Hoping to benefit from JJB Sports' (17% lower at 8p) trading and debt woes, rivals JD Sports jumped 20p to 773.5p and Sports Direct 3p to 128.5p.

Media communications and market research group Aegis slipped 2p to 130.5p after Charles Stanley Securities' analyst Richard Nunn advised clients to switch into WPP, 12p cheaper at 732p. He reckons overexposure to Europe is likely to slow growth for Aegis, and WPP is best placed to exploit emerging market growth and digital.

Buyers chased Entertainment One 9.25p higher to a peak of 121p after the distributor of TV programmes announced it has signed a three-year US deal for popular pre-school show Peppa Pig. The animated series will appear on Nick Junior in the US from early 2011. Broker KBC Peel Hunt described it as a 'landmark deal' which takes its key children's brand into the world's largest toy market.

Profit-taking following good interims left Western Coal 1.25p easier at 471p. The coal mining group with operations in Wales, North America and Canada reported record production in the second-quarter.

Audley Capital investors, led by South African activist investor Julian Treger, holds 26% following its takeover of Cambrian Mining last year. Net income of C$36m rose 18-fold year-on-year.

Highly speculative oil and gas explorer Petrel Resources rose 1.75p to 21.75p after saying work continues on the Subba & Luhais projects in Southern Iraq. Sentiment was also helped by news of the expected formation of an Iraqi government, which should at long last clarify oil policy and enable Petrel and Gulf Keystone (3.5p up at 190.75p) to proceed with projects in the war-torn country.

Atlantic Coal, the open cast coal production and processing minnow, firmed 0.035p to 0.42p on a Fox Davies Capital recommendation and target price of 1.2p. Atlantic has a high-quality anthracite coal project in Pennsylvania, America.

UK Coal improved 0.25p to 38.5p after reaching agreement with South Africa's Mpumalanga provincial government after the company was asked to address environmental concerns at its Mooiplaats colliery.