London afternoon: Market licking its wounds

3rd Nov 2009 14:11

The FTSE 100 index clawed its way back above the 5,000 level over the lunch-time session, helped by positive reaction to announcements from Lloyds Banking and Legal & General.Royal Bank of Scotland (RBS) remains resolutely out of favour, however, as the market reacted negatively to the revised terms of its participation in the government's assets protection scheme (APS).The government is injecting another £25.5bn into RBS, with a further £8bn available if things get worse rather than better.The bank will not be allowed to pay dividends for the next two years and will have to divest its insurance arm and a raft of other businesses to meet European rules as a pre-requisite for its participation in the APS.The news was not greeted warmly by the market, and RBS shares are the worst performers among blue-chips. A better reception was accorded to confirmation from Lloyds Banking Group that it will raise £21bn from a £13.5bn rights issue and £7.5bn swap of existing debt for contingent capital. The government will take up its rights, investing £5.7bn net of an underwriting fee to keep its stake in Lloyds at 43%. It will pay a £2.5bn break fee to avoid being tied into the APS. The EC also says it won't be able to pay some dividends on hybrid capital securities.On current trading, chief executive Eric Daniels said the group is delivering in line with guidance in all key areas of the business, but still expects to report a loss before tax for 2009, excluding the impact of the £11.2bn credit relating to negative goodwill.Struggling for coverage on a big day for news in the banking sector, Barclays announced a major shake-up of its executive board with the departure of Frits Seegers, chief executive of the global retail and commercial arm, while Anthony Jenkins will head a new global retail division.Legal & General was upbeat about hitting its 2009 net cash target three months early, with £461m net cash generated in the first nine months of the year. Worldwide new business in the first nine months of 2008 was down 7% to £1,058m from £1,137m in the corresponding period of 2008.The rest of the insurance sector is a train wreck, however, with Old Mutual, Prudential and Standard Life all sharply lower, while Aviva gets marked down after it said shares in its Dutch financial services subsidiary Delta Lloyd have been sold at €16 each, less than the market had hoped for.The UK-based insurance giant revealed earlier this year it would be selling 42% of Delta Lloyd via a flotation and a private placement, but has only just announced the terms, which value the whole of Delta Lloyd at €2.65bn. Proceeds from the share sale will be €1.12bn (£1.03bn). Mining stocks are also getting it in the neck as metals prices turn lower again. Xstrata, ENRC and BHP Billiton are the worst performing miners.Chile-focused mner Antofagasta escapes relatively unscathed, however, after announcing an 11% slide in copper production in the third quarter from a year earlier. Output was up 3% on the preceding quarter, however.Aero engine manufacturer Rolls-Royce is still expecting underlying revenues to grow this year and profits to be of a similar level to 2008. In a trading statement covering the second half of the year, the company said trading activity across the group's operations remains consistent with expectations against a background of generally depressed global market conditions.Property firm Hammerson has seen a firming of UK property yields in the second half of the year as a modicum of confidence returns to markets. Demand for commercial property has increased in the UK and France since 1 July, albeit from a low base in the case of France, where transaction levels remain low in absolute terms.Associated British Foods reported a 4% rise in full year adjusted pre-tax profit and added it was confident of progress for the year ahead. Growth was driven primarily by increased sugar sales and good demand at Primark.Sticking with the retail sector, Dunelm is wanted after it forecast a much better than expected first half after strong early growth continued with like-for-like sales up by 15.1% in the 17 weeks to end October. "The group is well positioned to achieve a sales and profit outturn for the first half of the financial year comfortably ahead of our previous expectations," chief executive Will Adderley said.Stagecoach, the bus and train group recently spurned in its merger talks with beleaguered rival National Express, has seen year on year growth in UK revenues in the half year to mid-October but it remains 'below the growth rates observed in recent years,' the company said. Engineering group Weir said it expects fourth quarter profit to come in at the upper end of market expectations after a strong third quarter performance. That was not enough to stop the share price sliding, however. The company said cost cuts and the weaker pound helped trading in the third quarter despite uncertainties in many of its markets.Strong demand for investment products as equity markets rallied helped new business pick up at wealth manager St. James Place over the past three months. On an annual premium basis, total new business in the quarter to September rose 3% to £104.6m. Speciality pharmaceutical company Neuropharm Group is engaged in talks which may lead to an offer being made for the company. The loss-making company, which currently has no revenue, is seeking a sale or merger of the company so that the value of its drugs pipeline can be maximised.Housebuilders such as Barratt Developments and Bovis are deep in the red after British construction activity continued to fall in October. The PMI survey from Markit Economics and the Chartered Institute of Purchasing and Supply showed that the PMI index fell to 46.2 in October from 46.7 recorded in September. Analysts expected a reading of 47.2.Own-brand products maker McBride is smarting after its chief executive officer, Miles Roberts, defected to cardboard and paper supplier DS Smith. Outdoor clothing retailer Blacks Leisure has finalised the terms of a restructuring plan with its banker. Business and trading software specialist Microgen said profits in the third quarter were ahead of plan. The company, which also announced it is selling its non-core Billing Services division to Swiss Post for £7.5m (gross), said its Aptitude Solutions division had a good quarter while recurring revenues in the Financial Systems arm are helping the division weather tricky market conditions.