Well received results from Marks & Spencer have helped push markets higher, but gold miners are refusing to glister.
With the strong dollar - boosted by the US Federal Reserve ending its quantitative easing programme and the prospect of rising rates as well as the Republican win in the mid-term elections - investors are shying away from precious metals. Given they are priced in the US currency, any rise increases the cost and lessens the attraction. Meanwhile markets have been calmer after the recent volatily, so the status of gold and silver as a haven from the storm seems less important.
So with gold falling for a fifth session in six, down $20 at $1147 an ounce, Randgold Resources is 93p lower at £37.12 while Mexican precious metals miner Fresnillo has fallen 10p to 687.5p.
Egyptian gold miner Centamin has slumped more than 9%, down 4.97p to 47.28p after it cut its full year production forecast for its Sukari mine. It now expects 370,000 to 380,000 ounces in 2014, compared to earlier estimates of 420,000 ounces. Numis said:
[This is] not unexpected and well flagged by us as we assumed the fourth quarter looked too big a stretch. However, the revised guidance is even lower than our 403,000 ounces. On the positive, the blasting permits have finally been granted. The wider question is the ongoing run rate into next year, with an implied 480-520,000 ounces... We move down our 2014 earnings per share by 12% but leave our 2015 numbers unchanged. We maintain our hold recommendation and 60p target price.
Overall though the FTSE 100 is moving higher after two days of decline. The index is up 35.09 points at 6489.06. But there is still some nervousness ahead of this week’s Bank of England and European Central Bank meetings, and Friday’s non-farm payroll numbers.
Among the retailers Marks has jumped nearly 8% to 436.8p after first half profits rose from £262m to £268m, the first increase in four years and better than analysts’ forecasts of £252m. Marks was, in common with other retailers, hit by the recent warm weather but it said cost cutting and rising food sales offset a decline in clothing revenues.
Primark owner Associated British Foods has added 104p to £28.87 while Next is up 25p at £64.65.
Elsewhere Meggitt is up 27.8p or 6% to 467.8p as the aircraft parts supplier unveiled a share buyback programme which outweighed a downgrade to its expectations for 2015, blaming delays in US military business and financial difficulties at its partner in Brazil. Investec said:
Meggitt’s third quarter statement came through better than the low expectations reflected in recent share price performance. A recovery in aftermarket and military revenue growth is encouraging and we expect only small (around 1%-2%) downgrades to consensus earnings per share for this year and next. We believe the share buyback could be up to around £250m by the end of 2015 and is an encouraging indication that management is focused on capital discipline and improving core businesses that have disappointed recently, rather than chasing the next large acquisition.
Vodafone has added 4.6p to 208.15p as UBS raised its target price from 255p to 260p with a buy rating. The bank said:
We think Vodafone will be a beneficiary of market repair in Germany, Spain, Italy and the Netherlands. We note TKA in Austria is already seeing a sharp rebound in EBITDA growth 18 months post consolidation. Near-term we think Vodafone could focus on divestments rather than M&A which could realise £4bn. Longer-term, Vodafone could be acquired or undertake a transformational deal with either Liberty Global or Sky Europe. Vodafone has substantial tax assets that could be worth an incremental £7bn (27.5p per share) if it were part of a bigger group - this is not in our sum of the parts [target price].
But outsourcing group Capita is down 11p at £10.69 after downbeat comments from Shore Capital ahead of the company’s update next week. Analyst Robin Speakman said:
The outsourcer is due to update the market on trading to date for the year ending December 2014 next Tuesday 11 November. This should provide clarity on revenue flow for the full year, though we may have to wait for next February’s final results for detail on further declines in the group EBITA margin.
The failure to win Ministry of Justice probation contracts last week came as a disappointment, but has no impact on our forecasts for the current year or next; we expect the £40m annual revenues or so these contracts may have provided (our assessment of the likely wins) to be made up from wins in other areas and acquisitions in due course. So this does not change our view.
However, we do note a slow environment for major contracts, particularly from the public sector (May 2015’ election hiatus) and we believe that this is likely to remain challenging for some time. We believe that through next year, 2015, upgrades will consequently be hard to come by, especially in the face of continuing potential margin pressure – through we expect good cash generation to continue. The bid pipeline now appears focused upon the private sector in retail, telecoms and utilities and once more in financial services – all potentially lower margin in our view. We do not expect guidance to change next week on the third quarter announcement, but we remain cautious. Hold.
Esure is down 14p at 225.5p after it reported a 7.4% decline in quarterly premiums due to competition in UK motor and home insurance. Rival Admiral has lost 29p to £13.07. Andy Hughes at Exane BNP Paribas said:
We believe earnings and dividend forecasts look unrealistic for all the motor insurers and results from Direct Line and Esure have reinforced this view. Admiral reports on Friday 7 November.
