The standoff between Greece and its European creditors on Monday has seen shares fall back, but hopes that a deal can still be reached before the eleventh hour is giving some support.
Investors are also taking heart from the European Central Bank finally authorising a quantitative easing programme last month.
So the FTSE 100 is currently down just 7.02 points at 6850.03, ahead of UK inflation figures.
Royal Mail is the biggest faller, 15.6p lower at 432.4p after Morgan Stanley cut its target price from 350p to 340p with an underweight rating. It warned of lower mail volume and a lack of growth in the parcels business, and said its valuation was not justified given consensus earnings per share forecasts had fallen 15% in the last two months, with the prospect of more to come. It said:
We see two headwinds in 2016: 1) the decline in letter mail volume could accelerate on the back of weaker macro growth in 2015 and two fewer working days; and 2) parcels revenue growth is still a challenge thanks to intense competition. We remain concerned about the company’s ability to generate parcels revenue growth to offset the decline in lettermail. Additionally, our initial assumptions on further efficiencies in 2016 now look too generous. Despite efficiency efforts, costs will also be impacted by 1) higher non-cash pension expenses, 2) fewer working days and 3) a rolling off of the cost savings initiative from 2015. We have cut our 2016 and 2017 estimated earnings before interest and tax by 25%, with free cash flow down by 15-20%.
InterContinental Hotels is down 64p to £25.24 despite a 10% rise in full year profits to $648m, helped by strong growth in the US market. But the company had been expected to signal another share buyback, funded by the sale of the Le Grand hotel in Paris.
Among the mid caps, insurer Brit has jumped 28.2p to 302.4p after Canada’s Fairfax agreed a 305p a share takeover, valuing the business at £1.22bn. Peel Hunt said:
Given the irrecoverable undertaking from ex-private equity owners Apollo and CVC, our recommendation is to take profits and switch to either Novae for value, or to Beazley for larger cap insurance exposure.
