In another topsy-turvy day for investors, the private equity group 3i epitomised the volatility in the market by making early gains, only to take the FTSE 100's wooden spoon by the close of play.
Initially 3i was buoyed by news it was buying out its 44%-owned listed subsidiary 3i Quoted Private Equity, giving it access to about £240m of cash reserves. This was seen as the latest positive move by the business to tackle its £2.1bn debt mountain. Sentiment was also helped by reports it was seeking two new non-executive directors, one of whom would in time assume the chair of the business.
But a downgrade by the ratings agency Standard & Poor's deflated the bubble, and 3i closed down 15.5p at 202.25p, having climbed as high as 233.5p.
As 3i, so the rest of the market. An initial recovery on the FTSE 100 after news that some of the major UK banks planned to spin off toxic assets into separate entities evaporated once Wall Street opened. US investors were nervous ahead of confirmation of a proposed government bail-out of major financial institutions such as Citigroup, leaving the Dow Jones Industrial Average about 100 points lower by the time the London market closed. So after reaching 3959.98, the leading index ended at 3850.73, down 38.33 points on the day.
The UK banks, however, held on to their gains, ahead of more news on any good bank/bad bank splits. Royal Bank of Scotland, reporting later in the week, rose 1.9p to 21.2p, while Barclays was 3.5p better at 98.7p. Lloyds Banking Group shook off sell notes from Nomura and Deutsche Bank to close 0.5p higher at 56.8p.
Insurer Prudential added 3.75p to 288.75p after reports that Clive Cowdery's group Resolution, up 0.5p to 110p, could be interested in the company's UK business. Clerical Medical, a division of HBOS now owned by Lloyds, was also suggested as a possible target for Cowdery.
Housebuilders were wanted ahead of half-year results from Barratt Developments later this week. Barratt itself added 0.5p to 71p as Panmure Gordon repeated its hold recommendation and 75p-a-share target. Persimmon closed 11p higher at 296.25p, while Bellway was 18p better at 568p.
But the broadcaster ITV, due to report full-year figures on 4 March, dipped 1p to 23.5p on concern about trading and a possible fundraising. Analysts seem to be generally negative in the short term, but more positive further out. Credit Suisse said:
"ITV is set to go cap in hand to shareholders to ask for £300m in the face of plummeting advertising revenues, onerous debt obligations and a growing pension deficit. Michael Grade, executive chairman of the UK's biggest commercial broadcaster, is understood to be considering the rights issue, which could be announced alongside ITV's annual results next week, together with the sale of assets and hundreds of job losses. Its stake in Freeview is one asset said to be up for grabs."
But Credit Suisse added:
"We do see a positive longer term story for ITV based on: (i) the eventual reversal of the cyclical rating and earnings compression; (ii) the possibility of further efficiency savings; (iii) regulatory upside; and (iv) the eventual resumption of takeover speculation."
Cazenove expressed similar sentiments to Credit Suisse:
"Although the shares have fallen sharply recently, we retain a cautious view near term and expect ITV's results to reflect weak advertising trends, a dividend cut and a very cautious outlook from management. Longer term we do, however, also believe ITV offers a combination of early cycle recovery and potential M&A upside and see scope for material outperformance when the advertising outlook stabilises. For investors willing to look at the earnings per share progression through the cycle we therefore see further weakness from the current levels as an opportunity to buy the shares."
Finally, Aim-listed Indago Petroleum jumped 14p to 26.5p. The company has settled an insurance claim relating to an underground blowout at the Al Jariya well on the Jebel Hafit prospect a year ago, which should boost its cash balances to $38m. Its market capitalisation - even after the increase in its share price - is less than $20m. The company's nominated advisor Ambrian said:
"There are several scenarios that could materialise over the coming months concerning the use of cash subsequent to the insurance payout. At present Indago has no firm well commitments, although we understand that scope for re-drilling the Jebel Hafit and Adam prospects is being evaluated. Importantly, the insurance settlement means that Indago is no longer under pressure from the insurers to re-drill Jebel Hafit during 2009. Shareholders retain exposure to an exploration company that has the opportunity to create a material increase in value through the deployment of funds in Oman or, possibly, elsewhere. The insurance settlement removes a significant uncertainty that had been present for some months. We retain our speculative buy recommendation."
