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Tobacco stocks provided a haven on Monday as the FTSE 100 recorded its sharpest fall in three weeks.
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“In current market conditions, one’s call on tobacco is a proxy for one’s call on the market,” said Investec Securities analyst Martin Deboo. “Downgrade risk is as about as de minimis as it gets near term … The tobaccos are the closest thing one can get to a bond in the equity market.”
Imperial closed 0.5 per cent higher at £23.63, helped by an appeals tribunal overturning a £112m Office of Fair Trading fine, while BAT held steady at £30.00,
Investec was cautious on valuation, noting that BAT had risen to a 28 per cent premium to the FTSE 100 against a traditional discount of 18 per cent. Imperial, meanwhile, was trading at parity to its long-term multiple but had outperformed since mid-September, the broker told clients.
“Both UK stocks look like crowded trades,” Investec said. “We would be wary of arguing for an upward rerating from this level … But neither do we see much risk of a derating either.”
Risk-off mode in the wider market left only six blue-chip risers, with the FTSE 100 losing 1.8 per cent or 101.35 points to 5,427.86. Lloyds Banking Group lost 8.6 per cent to 24½p and Royal Bank of Scotland fell 6.5 per cent to 20½p.
ENRC was the sharpest faller in a weak mining sector, losing 7.4 per cent to 634½p, on news it had been co-operating with the Serious Fraud Office over allegations of bribery at some of its mines. The SFO has confirmed it has not opened a formal investigation.
Precious metals miners dropped in tandem with gold, which fell below $1,700 a troy ounce. Fresnillo dropped 6.5 per cent to £16.54 and Randgold Resources was off 3.1 per cent to £66.55.
African Barrick Gold lost 7.2 per cent to 472¼p in the wake of Friday’s cut to production guidance, which it blamed on power shortages in Tanzania.
A Citigroup downgrade to “neutral” on valuation grounds helped send Royal Dutch Shell lower by 1.3 per cent to £23.25.
Indian energy group Essar Energy sunk 8.5 per cent to a record low of 204p after India said factory output had fallen for the first time in more than two years. The stock has tumbled 54 per cent since its flotation last year.
Separately, India’s federal investigation agency reportedly charged Ravi Ruia, Essar Energy’s chairman, and several others over alleged wrongdoing during the 2008 auction of mobile phone licences. After the close, Essar Energy said the reports did not relate to its business operations and pledged to update shareholders if there were any implications.
Inmarsat lost 5.3 per cent to 401p on a further setback for Lightsquared, the fledgling broadband provider that is its key US customer. Lightsquared’s network interferes with three-quarters of global positioning system receivers tested in a draft government study, Bloomberg reported.
Intel’s warning that hard drive shortages would continue into the first quarter sent Pace , the set-top box maker, lower by 6.2 per cent to 67¼p.
CSR bounced 9.8 per cent to 183p after the chipmaker said it would close the TV operations of Zoran, the US peer it bought four months ago for $485m. CSR said the closure would help save $60m a year.
Mothercare jumped 4.6 per cent to 168p on reports that it was attracting predatory interest from private equity groups including Cinven. Analysts were cautious ahead of Christmas, and on concerns that UK leaseholds may prove too expensive to ringfence.
“While shareholders may not offer too much resistance to an approach, we don’t think that private equity will offer a material premium to the current share price, given the costs involved in fixing the business,” said Banco Espirito Santo.
London Stock Exchange lost 4.9 per cent to 780p after agreeing to buy the 50 per cent of the FTSE International index business it does not own for £450m — about double analysts’ valuation of the business.
By Bryce Elder and Neil Hume