Market report: Thursday close

By Mickey Clark for MailOnline
Updated:

 

It was not the sort of start BT Group's Ian Livingston might have wished for on his debut as chief executive, the share price tumbling 23.7p to a record low of 173.9p today, making the company the worst performer among the top 100.

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By contrast, shares of BT's main European rivals France Telecom and Spain's Telefonica rose sharply in response to their own profit numbers. BT's first-quarter numbers failed to match up to City expectations as the communications giant reported a meagre 1% rise in earnings. They were £1.43bn before tax, interest, depreciation and all the other items that accountants like to throw in these days.

Analysts had been looking for a figure of £1.45bn. The company also warned about margins at its Global Services division, the amount of cash it had spent and the fact the pension fund had moved into a deficit of £600m after a surplus last year of £2bn. In fact, BT spent £734m in the first quarter, up from £152m last year.

The brokers quickly made clear what they thought of BT's performance. Collins Stewart said the cash spend looked dreadful. Merrill Lynch is worried about margin pressure but is sticking with its buy rating and 295p target. Morgan Stanley is also worried about margins, and keeps the shares at equalweight with a 250p target while Nomura has kept its buy rating despite concerns over 'very weak' cashflow.

Investors also had to absorb a long list of other companies reporting, ranging from Anglo American, up 11p at 2921p, through to Reed Elsevier, ahead 32½p at 576½p, pharmaceuticals group Shire, 29½p higher at 831½p, Prudential, 9p better at 546p, and AstraZeneca, 78p dearer at 2468p. Even HBOS put on 19¼p to 290½p on a brighter outlook, and despite a collapse in profits.

But there was little support for Unilever, 122p cheaper at 1388p, satellite broadcaster BSkyB, 7¾p lighter at 454¼p, and SABMiller, 54p off at 1049p. British Gas owner Centrica lost an early lead to trade 3¼p lighter at 314¾p, while profit-taking left Royal Dutch Shell 23p lower at 1782p despite record profits.

Prices generally failed to hold on to their initial gains, and the FTSE 100 index was 8.8 points lower at 5411.9. Wall Street lost ground this afternoon on the back of shrinking US gross domestic product and rising jobless claims. The Dow fell 42.8 to 11,540.9.

It may be a bit late in the day, but Merrill Lynch has decided to downgrade its rating on troubled stores group Woolworths from buy to underperform. The shares responded with a fall of 0.09p to 5.73p - a whisker above its record low of 5.55p. Earlier this week, the stores group reported a drop in sales and further shrinking of margins.

Landsbanki cut from hold to reduce, and Dresdner Kleinwort said the shares were now worth 3p compared with its previous estimate of 10p. It continues to urge clients to sell.

Morgan Stanley has cut its target for Schroders, down 24½p at 964p, from 1160p to 975p while repeating its equalweight rating. The US broking house is also reducing its earning per share estimates by about 10% for this year and by 8% for 2009. The shares are currently trading at about 11 times earnings, which it does not think is cheap compared with the European sector average of about 10 times earnings.

RBS has repeated its hold rating on ARM Holdings, up ½p at 96p, and raised its price target from 83p to 93p. After three years of disappointment, the microchip designer and developer's Physical Intellectual Property Division (PIPD) may be turning around, and it is raising its price target. The broker is sticking to its hold rating on the group for now, citing macro concerns.

Oil explorer BowLeven rallied from recent weakness with a rise of 37p to 250p on the back of a positive drilling report on its IF-1r exploration well.

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Monday's agenda

After news this week that British Airways has entered merger talks with Spain's Iberia, it posts quarterly figures, with analysts fearing profit forecasts will be slashed. Chairman Martin Broughton has warned the flagship carrier will struggle to stay in the black this year as soaring fuel costs erode margins. Firstquarter numbers could prove particularly dire with the costs of the Terminal 5 move and the oil price hitting a record during the period.

Alliance & Leicester continues what is likely to be a miserable bank reporting season. A&L, which agreed to a takeover by Spain's Santander, is expected to say first-half profits were wiped out by the credit crunch.

July's US non-farm payrolls will be closely watched for an update on the health of the American economy. Experts predict the data will show 75,000 jobs were lost last month, the seventh consecutive month of decline.

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