TV set-top box maker falls off the pace

By Graeme Dickson
Updated: 12:20 EDT, 11 May 2011

The FTSE picked up 34 points or 0.56 per cent since last Wednesday to yesterday's close of 6018, primarily recovering from last week's mid-week slump, but also in reaction to the US's all important Non-Farm Payroll figures.

Last Thursday, the FTSE managed to fall a further 64 points, not helped by poor corporate news while rising weekly jobless claims in the US added to the strain. Falling commodity prices also did not help the resource-laden FTSE 100 index.

The following day was a marked improvement with the blue-chip index gaining 56 points in direct consequence to the news that the Non-Farm Payroll figures came in much higher than expected, measuring at 244,000 new jobs created in the US for the month of April against a polled expectation of 198,000.

On Monday the FTSE gave back 34 points following reports in the German press that Greece was considering exiting the Euro, despite denials by both the German and Greek authorities.

The S&P credit rating company downgraded Greece's debt yet again on concerns of a possible default.

Yesterday the FTSE managed to gain 76 points possibly due to M&A excitement following Microsoft's $8.5 billion (£5.2 billion) purchase of Skype.

There was also talk of a restructuring of Greece's debt by the IMF, thereby averting a possible default and exit from the Euro, which may have buoyed market sentiment. The FTSE is still struggling to break through 6100 with upbeat corporate news being neutralised by geo-politics and macro-economic news, albeit the Non-Farm Payroll figures were encouraging.

The FTSE 100 is likely to remain in a tight trading range until we have a fairly significant event to drive it through 6100 or down through the support of 5850-5900.

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The most notable move in the FTSE 350 over the last week came in just one day from that of TV set-top box manufacturer Pace (PIC), falling 40.5 per cent since last Wednesday with the bulk of the fall coming just yesterday after it warned on profits.

It said yesterday its full-year profits will be below market expectations following a poor performance by its European arm and weak demand for its network technology with operating profit for 2011 to be between £97 million and £110 million. Analysts had forecast operating profit to average around £125.9 million.

The company also blamed a supply disruption due to the earthquake problems in Japan causing margin pressure, albeit rival companies such as Motorola and Technicolor have not reported such margin issues.

However, the fall may arguably bring in predators, private-equity being mooted, who may use the opportunity to buy the company on the cheap given that the management are being squarely blamed for the fall.

If you put to one side the competitive market it operates in, the product offering and its prospects are sound and therefore I would expect some form of dead-cat bounce soon.

Highlights from the FTSE 350 over the last week include:

• On Thursday Ferrexpo (FXPO), the iron ore pellet manufacturer fell 3.5 per cent to 462.6p despite more rumours that it was being eyed as a bid target. BHP Billiton is now being mooted as a predator with a 700p per share take-out price for Ferrexpo.

• Northumbrian Water (NWG) was also being eyed as a bid target, yet slipped with the market, down one per cent to 353.6p • Go-Ahead (GOG), the rail and bus operator is benefiting from a trend of drivers abandoning their cars to take to public transport and expects profits ahead of expectations. The shares gained seven per cents to 1497p.

• On Friday, down-on-its-luck Cable & Wireless Worldwide (CW.), gained 6.2 per cent to 49.74p, on talk that it is now low enough to attract attention from industry predators.

• Inmarsat (ISAT), the satellite company gained 4.38 per cent to 619p on Monday after it said total quarterly revenues rose 15 per cent, helped by payments from one of its US customers.

• Heritage Oil (HOIL) gained just 0.25 per cent to 235.5p, despite commencing an aggressive share buy-back programme, leading commentators to suggest the company is eyeing up an acquisition.

• Yesterday software house Misys (MSY) gained 1.36 per cent to 348.25p on rumours it was about to be bought out by private equity or to sell off one of its divisions.

• Bluetooth specialist CSR, gained just over six per cent to 391.5p after Zoran's weak trading update, a company it is expected to merge with, led some analysts to suggest the deal might not go ahead which would be viewed as positive for CSR.