Imperial Tobacco was a casualty yesterday as the FTSE 100 continued to flatline near its 18-month high.
The maker of Davidoff and Gauloises lost 2.5 per cent to £20.91, its sharpest fall in six weeks, after UBS said earnings growth was set to slow significantly and consensus forecasts for next year looked too high.
Imperial was running out of cost savings from its purchase in 2008 of Altadis but remained hamstrung by the debt, analyst Jonathan Leinster said.
He argued that Imperial had very few internationally recognised brands and was underweight compared with peers in emerging markets.
But Deutsche Bank said worries about an earnings slowdown were “frankly, bizarre”.
Imperial had been providing the same profit guidance in investor presentations for two years and its increased stress recently on driving organic sales growth should be reason for encouragement, the broker argued.
The FTSE 100 recovered from a fall of as much as 0.8 per cent to close barely changed, down 4.42 points at 5,602.3.
Banks weakened on profit taking, a trend encouraged by Jonathan Pierce, Credit Suisse analyst.
He said UK lenders still had to shrink their asset books by up to 18 per cent to meet new liquidity requirements in addition to raising new funding, which would temper any recovery.
Lloyds Banking Group was down 0.9 per cent to 53¼p and Royal Bank of Scotland lost 1.2 per cent to 39p. Barclays , recently the subject of rumours about a fundraising backed by a Chinese investor, closed flat at 345¾p.
Liberty International led property stocks lower, losing 4.1 per cent to 486p, after a lower than expected portfolio valuation overshadowed its break-up plans.
BAE Systems drifted 1 per cent to 380½p on news it was facing an export ban while US authorities process its plea bargain on corruption allegations. Analysts played down the potential disruption, saying the bar was likely to be brief and relatively easy to work round.
Arm Holdings faded 0.7 per cent to 229p after Tudor Brown, director and co-founder, raised nearly £1.2m with a share sale.
Other dollar earners featured among the gainers, with Aggreko taking on 2 per cent to £10.66 after UBS raised forecasts and repeated “buy” advice.
Old Mutual , which has been looking to sell its US operations, gained 1.8 per cent to 121½p ahead of tomorrow’s results and strategy update.
Credit Suisse remained positive on Compass Group , up 0.7 per cent to 503p, after a meeting with management boosted confidence that the caterer could improve profit margins.
Shanks Group headed the mid-cap fallers, down 15.1 per cent to 102¼p, after it walked away from takeover talks with Carlyle Group, which had offered 120p per share. Speculation that Carlyle might take the offer direct to shareholders helped keep the stock above 90p, which was where it was trading before the approach was made public.
In spite of sector consolidation gossip, Misys fell 3 per cent to 236¼p. Citigroup said the software maker was too optimistic about how quickly customers would adopt its banking and healthcare products. With shares trading at 25 times its current-year forecasts, any disappointment against the ambitious targets could trigger a derating, the broker said.
Logica was up 3.3 per cent to 124¼p after Evolution Securities turned positive on the IT services group, citing recovering demand and a prospective 12 per cent free cashflow yield next year.
A retread of takeover speculation helped Tullett Prebon , the inter-dealer broker, edge 0.5 per cent higher at 310¼p. Some traders were also suggesting that housebuilder Barratt Developments , down 1.6 per cent to 115½p, could be vulnerable to an offer.
Better than feared maiden results from Gartmore , up 2.6 per cent to 195p, helped buoy other fund managers. Henderson Group rose 3.6 per cent to 132p and F&C Asset Management took on 1.5 per cent to 63½p ahead of results due this morning.
By Bryce Elder and Neil Hume, The Financial Times
March 10 2010