MERRILL LYNCH did Invensys no favours yesterday. The broker told shareholders in the engineering group to sell, and it seems as if investors followed the advice as Invensys dropped 0.5p to 25p.
Following details of Invensys’ refinancing, Merrill has taken a careful look at the group and concluded the future is far from bright. “The outlook for Invensys’ key end markets is improving slightly but this is likely to be more than offset by the ongoing weakness of the US dollar,” warned the broker. Hence, it cut its 2005 forecasts a massive 40 per cent and now believes that Invensys stock should trade between 17p and 22p.
Investors should take the difficulty the engineer has had in selling its appliance and climate control divisions as a bad sign, Merrill told its clients, and advised them to lower their expectations of their worth.
With Wall Street closed for a public holiday, traders avoided taking large positions in blue chips stocks. The FTSE 100 index fell 3.9 points to 4,408.1. Vodafone dropped 3.5p to 132.5p as Citigroup Smith Barney criticised any move by the mobile phone giant to buy AT&T Wireless. “We believe buying AT&T destroys value,” said Citigroup, which downgraded its rating on Vodafone from “buy” to “hold”.
Although Abbey National gained 1p at 562p, dealers reported hefty short positions being opened up in the stock just before the close after talk the bank may be about to take a big hit on its remaining portfolio of junk bonds.
Bear stories on Abbey have been all the rage in the Square Mile of late. Earlier this month, the bank’s shares were hit by speculation its annual results on 26 February may disappoint.
Word has it the same hedge fund that last week made a packet shorting the drug maker GlaxoSmithKline ahead of its results are now taking bear positions in Standard Chartered, which is due to post annual numbers on Wednesday. Shares in the Asia-focused banking giant traded as low as 902p yesterday but rallied to close 8p higher at 920p.
Hedge funds certainly did well from shorting GSK, which has lost about 7 per cent of its market value since Thursday’s earnings disappointment. But what could be wrong at Standard Chartered? One fear among market professionals is that the bank’s foreign exchange trading desk may have found itself on the wrong side of the falling dollar.
Investec dropped 41p to 1,109p as Deutsche Bank told its clients to lock in profits from the stock’s recent strong rise. Shares in the South African bank have almost doubled since March and Deutsche believes they are “already discounting a fair amount of good news”. This leaves their valuation looking rather stretched in the short term, says the broker.
Enodis put on 3p to 94.5p in response to the purchase of 200,000 shares at 91.5p by Michael Cronk, a non-executive director. Mr Cronk has proved to be a very canny investor when it comes to his dealings in the company. He first started buying into the stock in April, a time when the group’s shares traded at just 35p. His most recent purchase was in November, which saw him pick up 150,000 shares at 83p.
Resorts World upped its stake in London Clubs International, off 1.25p at 124.5p. The Malaysian leisure giant picked up 5 million shares via its Palomino offshoot and now controls 15 per cent of the company. Over the past month, Resorts World has been mopping up LCI stock. But it has not all been one-way business. Trevor Hemmings, the home-grown leisure entrepreneur, has been selling down his holding in the casino operator and last week disposed of his remaining 7.2 million shares.
BioProgress added 14p to 141.5p as traders piled into the medical equipment developer ahead of full year figures on 8 March. Those buying into the stock were encouraged by talk that there may be some positive news flow from the group before the results. Word has it the group is close to securing a licensing deal for its disposal colostomy pouch with a major US pharmaceutical company.
Lupus Capital, where the former Tomkins boss Greg Hutchings has taken a 12.5 per cent stake and become chairman, added 0.5p to 14.12p as an extraordinary meeting approved the new management team’s incentive package.
Mr Hutchings hopes to grow Lupus via the acquisition of undervalued and cash-generative businesses and word has it news of a major deal is imminent. Lupus shareholders will be hoping that Mr Hutchings can repeat the success he had at Tomkins. During his 15 years at the company, the group’s market capitalisation soared from pounds 6m to pounds 5bn.
Potential Finance gained 3p to 32p as it emerged that Peter Gyllenhammar, the Swedish value investor, has taken an 8.6 per cent stake in the group via the purchase of 862,000 shares from two institutional sellers. Shares in Potential Finance crashed in September after a massive profits warning.
Quarto put on 3p to 172.5p as Collins Stewart was heard referring to the group as the cheapest media company on the London market.
And finally, talk of strong trading at Sanctuary Group pushed its stock 1.75p higher to 49p.
