Nobody doubts that Carillion has been wounded of late, its shares having slumped by nearly three quarters since a shock profits warning last month, so the last thing it needed was analysts weighing in, adding insult to injury. They did just that yesterday, though, brokers again cutting their valuations for the construction and facilities management group and providing an extra push down on the shares, which fell 3½p, or 6 per cent, to 53¼p.
A growing number of analysts believe that Carillion will have to raise funds through an equity or rights issue after taking a £845 million writedown. Investec slashed its target price from 300p to 50p. Analysts switched to a “sell” rating, down from “hold,” telling clients: “Our benchmarking analysis suggests Carillion could face further problems.”
UBS sliced its target from 78p to 47p, reiterated a “sell” rating and highlighted concerns over the value of the support services division. “Given few other assets and poor performance in construction, we believe the focus will shift mainly to this question, which is essential for an investment case in a scenario of re-capitalisation.” Its analysts warned that “any restructuring could result in significant dilution to current shareholders”.
Investec said that its base case now assumed that the company would conduct a discounted £500 million equity issue.
Only the AA tumbled further on London’s mid-cap index, shedding 34¼p to 210p after it announced that Bob Mackenzie, its executive chairman, had been fired “for gross misconduct”.
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In the FTSE 100, Rolls-Royce surged to two-year highs after revealing a better-than-expected first half. The engineer soothed City concerns over cashflow and rallied 91p to 979p. Intertek lifted its dividend by a fifth and reported a 22 per cent jump in half-year profits. Shares in the testing company added 394p to £46.95.
A day of strong earnings helped the Footsie to add 51.66 points, or 0.7 per cent, to 7,423.66. BP advanced 10¾p to 456½p after surpassing expectations in the second quarter.
The tobacco industry was granted a breather after two days of torrid trading, prompted by the US Food and Drug Administration unveiling plans to reduce nicotine levels in cigarettes. Imperial Brands, which had closed at £34.46 ahead of Friday’s announcement, bounced back by 83p to £32.03. British American Tobacco puffed out its cheeks and recovered by 118½p to £48.32.
At the other end of the index, Astrazeneca isn’t out of the woods. The pharmaceuticals group slumped last week after a trial of a lung cancer drug fell flat. Fitch downgraded the company yesterday, as UBS lowered its target from £51.50 to £45.50, sending its shares down 79p to £44.90.
The FTSE 250 ended the day up 82.46 points, or 0.42 per cent, at 19,863.6. Senior continued to enjoy a warm reaction to its half-year release on Monday, with shares in the engineering solutions group rising 15¾p to 264p. Barclays and JP Morgan Cazenove revised their targets from 256p to 265p and from 300p to 310p, respectively, as Numis upgraded from “hold” to “add”.
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As margin fears pushed SDL down 23 per cent, FDM Group, its IT services peer, continued to soar towards £10 after reporting a surge in profits. It closed up a further 50p last night at 969½p.
Touchstone begs to stay free
Touchstone Innovations made an impassioned plea for independence in the face of a £490 million takeover bid from IP Group (Alexandra Frean writes).
The Aim-quoted technology commercialisation specialist says the deal would cut off vital venture capital support to the “golden triangle” of elite universities in Oxford, London and Cambridge.
Touchstone has prided itself on the ability of its team of investment directors, many PhD scientists, to spot lucrative laboratory ideas since it was spun out of Imperial College in 1986.
Its chairman David Newlands said yesterday in a defence document that the bid would dilute his company’s “hands-on” approach.
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He said Touchstone’s “focus on and proximity to its investments has helped foster talent, first-class research, management teams and co-investors”. In contrast, IP had a broader international approach.
IP has letters of intent and commitments from 89.7 per cent of Touchstone shareholders. It needs firm acceptances only from these and a further 0.3 per cent to declare victory.
IP shares fell nearly 2 per cent to 140p. Touchstone’s closed flat at 295p.
Wall Street report
After blasting through the 20,000 level in January and the 21,000 mark barely six weeks later, the Dow Jones industrial average last night moved closer to 22,000 after banks led the index 72.80 points higher to a new record of 21,963.92.