Global markets ended the week on a sour note, with worries about the fate of Greece in the eurozone unsettling investors as well as uncertainty over a Chinese rule change on share trading.
On top of that technical problems at Bloomberg for a large chunk of the day disrupting trading in bonds and led to delays in a UK government debt sale.
With European markets sharply lower - Germany’s Dax ended down 2.5% - and Wall Street off 1.3%, the FTSE 100 finished 65.82 points or 0.93% lower at 6994.63. ending below 7000 for the first time in more than a week. Jasper Lawler, market analyst at CMC Markets, said:
Europe’s stock markets extended a week of heavy losses on Friday, spooked by changes in Chinese trading regulations, an outage in Bloomberg terminals and Greece drifting closer to the brink.
Chinese regulators altered rules to encourage institutional short selling and banned trading on over the counter or non-exchange-listed securities using leverage. The rules were aimed at adding a bit more two-sidedness, but given Chinese equities have been going almost vertically up, that second side could only be down.
As for Greece, there are few signs that the two sides are getting any closer to an agreement which would release badly needed bailout funds to the country, which also faces a number of imminent payments, not least to the International Monetary Fund which has ruled out any postponement of what is due.
Among the risers, BP rose 5.9p to 479.35p in the wake of Thursday’s annual meeting, while InterContinental Hotels edged up 6p to £27.22 on renewed speculation it could be in the sights of a US rival.
Among the mid-caps defence group Qinetiq climbed 7.4p to 202.5p after analysts at Barclays moved from equal weight to overweight and raised their price target from 210p to 220p:
From a trading perspective it is difficult to foresee significant earnings growth, outside of the impact of the share buyback programme, over the next year or so with the current portfolio of businesses and prospects. There also remains risk around defence spending around the UK election in 2015. This will be the challenge for new chief executive, Steve Wadley, who joins on 27 April 2015. However, in the current environment of a hunt for yield, Qinetiq has a number of attractions.
The shares offer a prospective dividend yield of around 3%. We expect Qinetiq to generate £83m (yield of 6.8%) of free cash flow in 2015...and £93m (yield 7.7%) in 2016 – the highest of our coverage universe. In addition the company is currently £102m through its £150m share buyback programme. Assuming only £40m of the current buyback programme remains outstanding at the end of March we still estimate net cash of £159m, or around 25p per share.
