Leading shares recorded their second day of gains as investors decided to take the long-awaited US interest rate rise - due after the UK market closed - in their stride.
But there were some exceptions. Arm was the biggest faller, down 31p to £10.21 on concerns about slowing sales for Apple’s iPhone, which uses the Cambridge company’s designs. There have been growing suggestions that the overall smartphone market is under pressure, while Arm has also been hit by recent disappointing updates from semiconductor group Dialog and graphic chip specialist Imagination Technologies, 22.5p lower at 123.5p.
Investors ignored a positive note on Arm from Credit Suisse, which raised its target price from £11.75 to £12.30. The bank said:
Following smartphone market seeing 28%/10% unit growth in 2014/2015, we now expect unit growth slowing to 5%/4%/4% in 2016/2017/2018 (6%/10% lower volumes in 2016/2017 versus our previous estimates) as smartphone market becomes more saturated (3.3bn smartphone subs ending 2015 on our estimate of 5.3bn long term total available market implying 63% penetration).
As such, we lower our 2016/2017 revenue (dollar) and earnings per share estimates for Arm by 3%/4% and 3%/6%, and also introduce 2018 earnings per share of 44.2p. However, with royalty rates on the rise and long term opportunity around networking, internet of things and auto, we believe Arm can deliver around 10% sales and 15% earnings per share compound annual growth rate over 2015-2018. As such, we reiterate our outperform rating.
Sports Direct, criticised for the treatment of workers at its warehouse, continued its recent slide, down another 9p at 570.5p. It was in no danger of being kicked out of the FTSE 100 at the index reshuffle earlier this month but now, just two weeks later, its shares have fallen so far it would be relegated to the FTSE 250 based on the current share price.
Overall the FTSE 100 finished 43.40 points higher at 6061.19, despite another fall in the oil price. Investors were more concerned with the Fed, and Connor Campbell at Spreadex said:
The markets appear to be prepping themselves for the announcement of a rate-hike and with it some much needed clarity. Any questions surrounding tonight’s announcement are now more focused on how fast the Fed will raise rates, rather than if they will raise rates at all, with analysts arguably looking for a ‘dovish hike’ and plenty of reassurance that Yellen and co will be taking things slowly. Of course the central bank still has the capacity to disappoint, though there seems to be more certainty from analysts and investors this time around when compared to the last feasible moment for lift-off back in September.
Among the UK risers Pearson, under pressure of late on concerns about the outlook, added 36.5p to 743.5p after both Exane BNP Paribas and Bernstein issued upbeat notes on the publisher.
Elsewhere Dixons Carphone added 8.4p to 485.1p following its figures, while SuperGroup soared 12% or 184p to £17 as its half year results beat expectations - the shares were hit earlier this week by a Liberum downgrade.
But supermarkets fell back on further consideration of Tuesday’s market share figures from Kantar Worldpanel, with Tesco down 1.3p at 148p.
Other retailers slipped back on concerns about the outlook for Christmas, with prices being slashed to encourage shoppers.
Womenswear retailer Bonmarche slumped 29% to 210.5p after it warned that profits would be lower than previously expected after challenging trading conditions since Black Friday in November, and it believed these would continue for the remainder of the winter season. At the same time it announced the departure of chief executive Beth Butterwick after four years.
The cautious trading comments from Bonmarche sent Marks & Spencer 2.4p lower to 460.2p and Next down 60p to £74.45. Clive Black at Shore Capital said:
We do not believe that Bonmarche’s warning and disappointment will be the last to be recorded by British retailers with a high participation in the fourth quarter and the festive season.
[Challenging] conditions mean that we await the January trading updates with increasing nervousness surrounding the robustness of present earnings forecasts for the non-food retailers. At the weekend we noted window discounting clothing at Marks & Spencer, which underscores the nervousness from a general merchandising perspective, albeit the group’s food business if the Nielsen & Kantar data are to be believed, is flying. We have not had high hopes for sales for M&S UK general merchandising but can the recently robust gross margins hold up? In this respect, can the mighty Next also withstand the aforementioned processes?
Mulberry dipped 1p to 917.5p after news that the luxury handbag specialist’s finance director Roger Mather had recently raised £540,000 by selling 59,000 shares at an average price of 913.5p a share.
But Rolls-Royce rose 26.5p to 566.5p as the aero-engine maker announced it was scrapping a layer of senior management as part of its turnaround plan.
Online gaming group bwin.party digitial jumped 7.7p to 124.4p ahead of its expected takeover by GVC, 26p better at 441p. Citigroup issued a positive note on both companies, saying:
We argue that GVC’s reverse take-over of bwin.party should drive multiple upsides: substantial value creation from the €125m cost savings; a broader spread of geographic, regulatory and product risk; around 11% free cash flow yield and around 8% dividend yield in 2017; a more than £1bn proforma market capitalisation and move to the main market (with FTSE 250 inclusion targeted in mid-2016). We initiate with a 580p price target for GVC.
We also upgrade bwin.party to buy (from sell) with a new 159p price target (from 65p) to reflect the terms of its acquisition by GVC. Deal completion is due in early 2016.
Housebuilders came under pressure after a downbeat note from Liberum, with Persimmon down 18p at £19.52 and Taylor Wimpey off 0.6p at 198.1p. Liberum said:
We turned more cautious on housebuilders in early November. We see the valuations of the three largest builders coming under pressure if gross margins peak in 2016 as selling price inflation cools but cost inflation does not. Our view has not changed as the autumn statement changes are mixed for the sector and the Financial Policy Committee’s inaction is a delay rather than a cancellation.
