Market report: Tuesday close
Broker raises spectre of BT, C&W pension holes This week's stock-market turmoil has raised the spectre of a return to pension-fund deficits among leading companies, which could play havoc with their balance sheets.
Broker Collins Stewart warns that some of the most vulnerable are the telecoms operators, including BT Group, down 5p at 252½p . It has about £40bn of assets in its pension scheme, of which 50% is taken up by equities, equivalent in value to its £20bn stock market price tag.
The broker warns the 12% decline in the FTSE 100 index since BT last reported will have wiped out the group's £2.1bn surplus. Rising bond prices will have boosted asset returns but done little to flatter liabilities. Rival Cable & Wireless, up 1.8p at 160.8p, has about £2.3bn of assets in its pension scheme, of which 46% is in equities - equivalent to about a quarter of its £4bn tag.
C&W traded nervously ahead of this week's trading update despite Credit Suisse repeating its outperform rating and 215p target. The broker reckons the telecoms company's restructuring still has some way to go. It says the turnaround in the UK is ahead of expectations, but this has yet to be reflected in company guidance to the City. It adds that C&W has scope to raise medium-term guidance for revenue and margins.
The FTSE 100 index rallied 161.9 to 5740.1 this afternoon while the Dow fell 354.70 to 11,744.60.
Anglo-Swiss mining giant Xstrata lost added 101p to 3280p. Not even the prospect of a bid from Brazil's Companhia Vale do Rio Doce could halt the slide. Speculators say that any offer from the Brazilians is likely to value Xstrata at around £45bn.
Hopes of an increased bid for Rio continue to recede, leaving the shares down 593p to 4295p. BHP Billiton, down 65p at 1300p, has already made an all-paper offer on the basis of three of its own shares for every one Rio, but Rio has rejected it.
Housebuilders enjoyed useful gains, with Taylor Wimpey rising 11p to 195p while Persimmon put on 59p at 818p. Even builders' merchant Wolseley rallied 67½p to 757p in the wake of yesterday's profits warning.
Containers and packaging specialist Rexam dipped 6p to 402p following a downgrade by Goldman Sachs from neutral to sell. The broker has also downgraded DS Smith, off by 6¼p at 164frac14;p.
Tate & Lyle came off the boil, rising just 1p to 472¼p. The shares have outperformed the rest of the market since striking a low of 415½p earlier this month. But Numis, with a hold rating and 450p target, says the rise is unjustified. It reckons the business has not fundamentally changed and remains the weakest in the sector.
GW Pharmaceuticals firmed 1½p to 69p despite a positive report on phase one trials for its cannabis-based diabetes treatments. The company has begun preparing for phase two trials this year. GW also reported full-year losses of £10.9m, down from £13.3m in 2006. Investec says the company is poised for the most important year in its history.
Elsewhere in the drugs sector, Protherics gained 3½p to 53p. The company says AstraZeneca, with whom it is collaborating on sepsis treatment CytoFab, has treated the first patient in its expanded phase two tests and it expects to report the first study in about 12 months.
The biopharmaceutical specialist says the phase two programme at Astra-Zeneca, down 17p at 2201p, will consist of two studies in patients with severe sepsis, an inflammatory condition resulting from uncontrolled infections.
TOMORROW'S AGENDA
• Minutes from the Bank of England monetary policy committee's meeting will be scrutinised by the City for clues on how extensively interest rates will be cut later this year. Members are expected to have expressed concerns about the economy slowing, but fears of spiralling inflation stopped them from repeating December's quarter-point cut. Consensus forecasts are that the vote was seven to two in favour of a hold, with arch-dove David Blanchflower believed to have been among those supporting a decrease. Analysts predict rates will be cut next month.
• Mining giant BHP Billiton, which made an informal offer for rival Rio Tinto in November, unveils full-year production figures. Despite BHP reporting record iron-ore production and sales, gloom is engulfing the sector. Experts believe a cooling in the global economy caused by a US recession will result in a drop-off in demand for iron and other metals.
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