The City drove Auto Trader to the top of the FTSE 250 after a broker argued that fears around the digital used-car marketplace have been overdone. Shares in the group surged 19p to 435p after Barclays upgraded from “equal weight” to “overweight”.
Analysts at the bank tried to soothe client concerns over Auto Trader’s exposure to weakening used-car markets, lifting their target price from 425p to 470p. “There are risks in the outlook for used-car pricing, but we do not expect wide forecourt closures. And even if that occurred, what matters most for Auto Trader are levels of used-car stock,” they said. “Here a decent outlook for used-car transaction volumes should be a tailwind.” Barclays argued that transaction volumes were “likely to hold up” and the industry will only face mass forecourt closures if the decline in used-car prices was rapid.
“Regardless, our work on Auto Trader’s pricing model suggests that what matters the most to revenues by far is volume of stock, not the amount of forecourts,” it said.
Forecasting that revenues will hit £309 million this year, £337 million in 2018 and £365 million in 2019, the bank upgraded only a week before Auto Trader is due to release full-year results. Shares in the company slumped from 418p to 313¾p after Britain’s vote to leave the European Union last year. They hit an 18-month high last night.
Overall, having flirted with record highs, London’s mid-cap index fell short, closing up 38.45 points, or 0.19 per cent, at 20,010.62. Aldermore was under pressure, shedding 9¾p to 234p after Exane BNP Paribas lowered its rating for the smaller lender from “neutral” to “underperform”, warning of slowing loan growth and more impairments.
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While Petrofac shares were initially hit hard by Moody’s decision to cut its rating to junk status, slipping to a low of 352½p, they later recovered to 375½p, down 4½p. Moody’s explained that it had downgraded in the light of the Serious Fraud Office’s investigation into the oil and gas producer. Scott Phillips, vice-president of Moody’s, said that while the outcome was uncertain, “it could result in financial penalties that would negatively affect profitability if any allegations are proven”.
The FTSE 100 gained 23.82 points, or 0.32 per cent, to close at 7,543.77, four points short of its record high last Friday.
Barclays boosted 3i Group, the private equity group, lifting its target price from 750p to 980p. The bank said that Action, the Dutch discount retailer that accounts for about a third of 3i’s portfolio, reassured investors this week on growth momentum. It also noted that 11 per cent of 3i’s holdings were growing at a rate of more than 30 per cent year on year. Shares advanced 32p to 927p.
Other top performers included Paddy Power Betfair, which rose 350p to £84.20, and Convatec, which gained 10¾p to 330¾p.
Mediclinic International slid 27½p to 781p. Credit Suisse and Bank of America Merrill Lynch downgraded their ratings for the private healthcare group, from “outperform” to “neutral” and “buy” to “neutral” respectively.
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HSBC removed ITV from its “buy” list, with a put-down sharper than those delivered by Britain’s Got Talent judges. Shares in the broadcaster are “cheap for a reason”, the bank’s analysts said, lowering their rating to “hold” and cutting their target to 215p. Shares fell more than 4p to 191½p.
Wall Street: Strong economic data led by a rise in private sector jobs in May made for a positive session. The Dow Jones industrial average rose 135.53 points to a record 21,144.18. The S&P 500 was 0.6 per cent up at a new high of 2,430.06.
Telecoms
Deals talk boosts satellite sector
Shares in Inmarsat rocketed amid speculation that it could get caught up in a consolidation in the satellite sector. The London-based communications provider rose 44½p, or 5.6 per cent, to 844½p.
Before the market opened yesterday, it was reported that SoftBank was dropping the planned $14 billion merger between Oneweb, its satellite company, and Intelsat. The news heightened belief that others in the sector could become targets.
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Intelsat’s creditors were not persuaded to back its merger with Oneweb, according to Reuters. Some analysts in the City are speculating that Masayoshi Son, the founder and chief executive of SoftBank, may turn to Inmarsat, which has a market value of £3.83 billion and was relegated from the FTSE 100 last year.
Having started last year at £11.37, its shares finished the year at 751½p. A string of downgrades dragged them to 603p, a four-year low, in February. They recovered to 850½p, an eight-month high, on March 31 amid more positivity among analysts. It is currently up 12.6 per cent since the beginning of the year.
SES closed up 5 per cent and Eutelsat rose 2.3 per cent as they too were caught up in the takeover chatter.
Wall Street report
Strong economic data led by a rise in private sector jobs in May made for a positive session. The Dow Jones industrial average rose 135.53 points to a record 21,144.18. The S&P 500 was 0.6 per cent up at an all-time high of 2,430.06.