A day after pushing towards a new record high, leading shares have come off the boil.
With weak Chinese services data - prompting a cut in the country’s reserve ratio - and another drop in the oil price hitting the commodities sector, the FTSE 100 slipped 11.78 points to 6860.02. Ahead of a meeting between new Greek finance minster Yanis Varoufakis and his German counterpart Wolfgang Schäuble, worries about the prospects for Greece and the eurozone re-emerged, adding to the general jittery feeling. David Madden, market analyst at IG, said:
The possibility of another round of the Greek debt crisis and a slide in natural resources stocks is a worrying scenario for markets. The admission by the Greek finance minister that the country is ‘bankrupt’ set the wheels in motion for a day of selling, and the failed attempt by Beijing to spur economic activity by slashing the central banks’ lending requirements cemented it. The mining sector initially jumped on the back of the news from Beijing, but it isn’t nearly enough to coax traders into buying mining stocks and the sector is squarely in the red. Eurozone equities are on edge as Greece is at loggerheads with Frankfurt again, and neither side wants to back down.
The biggest faller in the leading index was Hargreaves Lansdown, down 79p at 966p after the investment group’s half year profits fell from £104.1m to £101.9m.
Among the commodity companies, Tullow Oil lost 21.5p to 395.9p, Anglo American fell 20p to £11.50 and BHP Billiton dropped 31.5p to £15.27.
But Sky climbed 12.5p to 955.5p following its latest results while ITV rose 8.1p to 230.6p after Credit Suisse issued an outperform rating.
Arm added 32p to £10.69.after it unveiled a new chip design - the Cortex-A72 - for smartphones and tablets which promises improved performance and graphics.
Drug companies were among the main risers. AstraZeneca ended 46.5p better at £46.88 after it received planning consent to build a new global research centre and headquarters in Cambridge, which will employ around 2,000 people and become operational at the end of 2016.
Meanwhile GlaxoSmithKline climbed 23p to £14.76 as the company said it would decide by the middle of the year whether to float off its HIV medicines business, which could be worth up to £18bn. Fourth quarter sales of £6.19bn were more or less in line with expectations, and the company said the first half of 2015 would continue to be difficult before conditions improved in the second part of the year.
It later announced it would sell up to 4.47m shares - its entire stake - in Danish biotechnology company Genmab to institutional investors.
But Smith and Nephew slipped 7p to £11.68 despite the prospect of US predator Stryker making a bid. Analysts at Piper Jaffray said:
Based on our channel checks and view that Stryker does not want to be third in the orthopedic market where it competes (behind Zimmer Biomet and Johson & Johnson), we do believe that the company will indeed purchase S&N. By our estimate, S&N would be at least $0.50 accretive (probably closer to $0.75) to Stryker’s 2016 earnings per share (we assume it will take at least nine months to close). From a regulatory perspective, we do ot believe that either the EU or US Federal Trade Commission would challenge the deal or require a meaningful level of divestiture to complete the deal.
Dixons Carphone edged up 2p to 431p after Barclays dismissed concerns about the effect of proposed consolidation the mobile industry would have on the company. Analysts Christodoulos Chaviaras and Maurice Patrick said:
In light of BT and 3UK entering into exclusive talks to buy EE and O2, respectively, we analyze the potential impact network consolidation could have on Dixons Carphone’s profitability and conclude that investors may be overly pessimistic. We would not dismiss that network consolidation will be a prevailing theme in 2015 but our analysis suggests that at the current share price investors already assign a 50% probability for Carphone UK to be worthless. We understand that Dixons Carphone has signed binding long-term contracts with all network operators at least until 2020 that should support mid-term profitability.
The worst case scenario in which all networks abandon Dixons Carphone after 2020 could potentially cost Dixons Carphone £170m of lost earnings before interest and tax or 130p a share on our estimates, but we consider it a tail event distant in the future for which we assign a 10% probability. We do not change our estimates but bring our price target down by 10p to 480p to incorporate this scenario. We reiterate our overweight rating.
Oil group Afren’s volatile run continued, as its investors awaited news of a possible bid from Nigeria’s Seplat. Its shares fell 0.74p to 11.10p after rising recently as it secured a month’s grace for $65m of debt payments.
AIM listed investment group Yolo Leisure & Technology, whose backers include entrepreneurs Chris Akers (4.7% stake) and Nigel Wray (23% stake), slipped 2.5% to 2.875p after it invested more than £0.5m in London-based live TV streaming business Simplestream in a £2m funding round.
Finally Nostra Terra Oil and Gas, which has a growing portfolio of assets in the US, rose 6% to 0.18p after record production in the fourth quarter - more than double the previous three months - and a rise in revenues despite the slump in the oil price.
