Worries about Greece’s fate in the eurozone after it delayed a €300m payment to the International Monetary Fund due on Friday sent European shares sharply lower, with the FTSE 100 recording its worst weekly fall for six months.
The UK’s leading index finished the day down 54.64 points at 6804.60, its lowest level since 31 March. The 2.57% decline over the week is the worst performance since 12 December last year. Germany’s Dax finished down 1.26%, France’s Cac closed 1.33% lower and the Athens market fell 4.96%.
Investors nervously awaited statements from Greek prime minister in Parliament after the crisis escalated, with the deadline for reaching a deal before the cash runs out fast approaching. On top of that, the US non-farm payroll numbers for May came in at a much higher than expected 280,000, prompting renewed talk of a possible US rate rise before the end of the year, perhaps as soon as July.
Back in the UK, food retailers were among the biggest fallers, with Morrisons down 4.7p at 173.6p as Deutsche Bank cut its target price from 210p to 180p. The same bank reduced its target for Tesco, down 2.85p to 205.8p, from 275p to 240p. On the sector it said:
We’ve seen no improvement in UK grocery market growth since the tentative rebound experienced December and January faded.
Those comments also seemed to affect Marks & Spencer, 18.5p lower at 560p.
Vodafone fell 6.05p to 242.05p as it confirmed talks about a possible asset swap with US group Liberty Global, disappointing those who had hoped for a full merger.
Chip designer Arm lost 13p to 311.28 after a revenue fall at one of its customers. Analysts at Liberum, long term sellers of Arm shares, said:
MediaTek, which is one of Arm’s key customers, reported May revenue this morning which fell 21% year on year. The fall is due to a slowdown in Chinese smartphone sales. Given Arm reports royalties one quarter in arrears this won’t impact Arm’s royalty until the third quarter.
Separately, the consolidation amongst Arm’s customer base could reduce its licensing revenue (NXP/Freescale are both important Arm’s licensees where only one license will be required from now on; Intel will presumably design out Arm’s technology now that it has acquired Altera).
Finally, ARM has been a major beneficiary of weak pound (dollar revenues, pound cost base). The recent bounce in sterling is a headwind... Smartphones are slowing and Arm’s progress into other markets will take time.
Elsewhere Royal Bank of Scotland rose 5.2p to 357p despite talk that the government was considering a share of its stake in the bank as soon as September. In a buy note on the bank, analyst Ian Gordon at Investec said any such move would be a mistake:
Many argue that Chancellor Osborne should “launch” a disposal of the UK Government’s 79% stake at the Mansion House next week; but why sell now at around 350p when he didn’t at 404p in February 2015? Alistair Darling wouldn’t even sell any at 576p (at a profit) in August 2009...We believe it would be a mistake for the government to initiate a sell-down now. We do not deny that the share price has enjoyed unwarranted and/or premature exuberance in the recent past. However, following sharp underperformance in 2015 year to date we believe the share price now carries an exaggerated “uncertainty discount” for outstanding conduct issues which should unwind over the next 12 months. Moreover, within this timetable, we expect very material progress with the group’s restructuring programme.
Mining companies have recovered some ground and given support to the market. Anglo American added 10.5p to 1015.5p and BHP Billiton was 3.5p better at £13.27.
Among the mid-caps consultancy group WS Atkins slipped 3p to £14.68 on reports it was interested in Australian groiup Cardno. Peel Hunt analyst Christopher Bamberry said:
According to The Australian Financial Review quoted Australian infrastructure and environmental services company Cardno (market cap £233m, enterprise value £509m) has courted the attention of Atkins and WSP Global. Cardno, whose share price has fallen by 55% over the past 12 months, has EBITA of around 30% that of Atkins’. The acquisition of Cardno would make Atkins a more geographically balanced business and help Atkins towards achieving its strategic goal of reducing UK exposure from 50% to 25%. We await developments.
Online gaming group Betfair ended down 136p or more than 5% at £25.09 after a Peel Hunt sell note.
