Fund managers lag rallying FTSE

The Commerce Department today said housing starts for May rose 5 per cent to a 1.957 million unit annual pace, compared with an upwardly revised 1.863 million unit rate in April; economists had forecast a 1.85 million unit pace for May.

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Amvescap was among the sharpest FTSE 100 fallers after Merrill Lynch cut forecasts on the Anglo-Canadian money manager to account for recent stock market declines.

In a preview of Amvescap’s second quarter results due next month, Merrill chopped estimates by 7 per cent and 10 per cent for 2006 and 2007 respectively, moving to earnings per share of 29p and 31.1p on an undiluted basis.

“On our new numbers, Amvescap is trading at around the average multiple for the US universe, with a weaker balance sheet than the average US stock but, admittedly, compared to un-trimmed estimates. It therefore, on balance, looks a bit cheap compared to the US universe, although not stunningly so,” Merrill told clients in an e-mail. “Amvescap is probably decent value, but that this depends heavily upon future market moves. On this basis, we are happy to retain our ‘neutral’ recommendation.”

The most curious part of the preview was that Merrill chose to make no adjustments for PowerShares, the exchange-traded funds specialist Amvescap agreed to buy in January. Merrill’s corporate side acted as financial advisor on the deal.

“Our reticence in valuing it springs primarily from our ignorance of its financials,” the US broker explained. “Whilst the top line is relatively easy to estimate, we have no view on the cost base, and how it evolves with the business.”

Merrill also trimmed forecasts on Schroders, by 5 per cent for 2007, and stuck with “neutral” advice.

Amvescap faded 10p to 476p, its first decline in five days. Schroders’ voting shares lost 10p to 993p.

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It was the oil and metals stocks that did most to flip the FTSE into positive territory through a skittish afternoon’s trading. BP was ahead 7p to 602.5p, rallying off a low of 584p, while BG Group turned a 14p loss into an 8.5p gain at 663p.

That came as New York benchmark crude nudged back towards $70 a barrel, up nearly a dollar on late yesterday in choppy deals before the front future expiry tonight. There was nothing new to extrapolate about Iran or the global demand outlook, so traders’ attention switched from the news to the weather: heavy rainfall has Texas and Louisiana has flooded some refineries, causing short term disruptions.

Anglo American led the rally among the metals stocks, ahead 92p to £20.87 and helped both by its share buyback programme and by vague talk of corporate action -- even though, in regulatory terms, these two factors should be mutually exclusive.

The miner, in the middle of a restructuring, has lately been suggested as a possible merger partner for Rio Tinto (up 79p to £27.67), although few expect anything bit to happen for at least a year, when the reshuffle will be complete.

BHP Billiton was ahead 33p to 988p after it inked a 19 per cent iron ore price hike with its Chinese steel customers for the current year, in line with the industry norm. The sector rebound came as metals futures, while off earlier lows, were not doing anything too outlandish.

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Cairn Energy lagged its peers, slipping 18p to £19.20 after Kevin Hart, its finance director since 1998, resigned to take up the role of chief executive at Bowleven, an AIM-listed oil explorer. He will be succeeded by Jann Brown, Cairn’s group financial controller, with the handover at the end of the year or after a shareholder meeting to approve the planned listing of its Indian exploration business, whichever is earlier.

Citigroup’s team commented that Mr Hart “has played a key role in the commercial development of the Rajasthan discoveries, as such he is a important loss for the company.” But it was relieved he was staying on through the Indian flotation, and added: “his replacement is an internal appointment well known by the investment community. As a result we do not anticipate that this development will materially impact the share price.”

Bowleven closed higher by 18.5p to 198.5p.

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British Energy inched up 7p to 694.3p even after its maiden full-year earnings since restructuring came in a shade less than expectations. The group posted underlying earnings through March of £846 million, against a consensus of £855 million.

The nuclear generator said it had sold around 73 per cent of this year’s planned output at prices around a third higher than last year. There was no change to forward guidance other than a move forward to disclose the dividend policy when the government sells its 65 per cent stake in the Nuclear Liability Fund -- expected before winter. There was, in truth, not much to get excited about.

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ITV was the day’s weakest blue chip, running back 2.75p to 102.5p, having risen by about the same margin yesterday on speculation about a new bid fronted by KKR and Lord Hollick, the former boss of United Business Media. With ITV’s board said to be stonewalling any approaches, that prospect looked to be a non-starter for the moment.

ITV hosts an investor day tomorrow, where the broadcaster will be expected to respond to industry estimates suggesting revenues on its flagship ITV1 station could be down as much as 11 per cent. The company probably has enough spare cash and capacity to bribe its way out of a revenue warning, with new cost savings potentially augmenting its current £300 million share buyback.

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Drink, drugs and cigarettes featured on the leaderboard as investors favoured sectors traditionally resilient no matter what happens to economic growth. Miller brewer SABMiller added 14p to 985p, Advair maker GlaxoSmithKline rose 17p to £14.82 and Dunhill roller BAT took on 10p to 910p.

Guinness brewer Diageo, up 20p to 923p, was further helped by data from the latest AC Nielsen report on the spirits industry, which covers about 15 per cent of the US market. A strong performance from Bailey’s, Captain Morgan, Johnnie Walker and Smirnoff gave Diageo volume growth of 6.1 per cent for the four weeks to early June, outperforming peers, the Nielsen report showed.

British Gas owner Centrica was another defensive to benefit from the trend, moving ahead 10.75p to 282p. Shares were, as usual, supported by background noise about a possible bid from Russia’s Gazprom, even though there seemed to be no specific reason for that rumour to get another airing today.

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Carnival extended its rally off two-year lows after the cruise operator last week delivered second quarter results in line with its recent profit warning and held its full year guidance. While Caribbean bookings were described as “sluggish”, there were a couple of positives to latch on to, namely a successful trial of fuel charges in Europe and improving price trends for the start of 2007.

At a post-results conference call, Carnival management also flagged up the possibility that new passport regulations requiring US passengers to carry documentation to the Caribbean could be delayed beyond the current implementation date of January 1, 2007. That was enough to convince Dresdner Kleinwort to repeat a “longer term buy” rating on the stock this morning, helping shares rise 16p to £22.10.

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On a more speculative tack, WH Smith added 12.5p to 460.75p as rumours did the City circuit that the newsagent has been approached by a private equity company with an aim to buying one or both its operating units, which are set to be split. A takeout price of 550p was being mentioned by a few of the speculators.

WH Smith said in April it would split off its newspaper wholesale division from its retail chain. The former seen as more likely to attractive private equity given its reliable cash flows, although a Competition Commission investigation into the newspaper distribution industry would present a significant hurdle.

WH Smith tried to sell the distribution arm five years ago; that deal, with ABN Amro Private Equity, collapsed at the 11th hour over price, while group takeover talks in 2004 with Permira fell apart over pension issues.

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JKX Oil & Gas was the top-performing mid cap, up 30.5p to 404p on talk that Russian investors operating under the Glengary Overseas holding company were back in the market, possibly looking to raise their stake close to the 30 per cent limit that would trigger an automatic bid.

Glengary yesterday disclosed it raised its JKX stake to 26 per cent through the purchase of 14.75 million shraes, which had been held by Benam Holdings, a similarly mysterious Ukrainian investment company. JKX drills in two locations in Ukrane.

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Back to fundamentals, and Whitbread took on 20p to £11.17 after an in-line trading statement revealed the usual mixed performance, with a generally upbeat message for the majority of its divisions countered by news of a tougher fortnight.

Premier Travel Inn and Costa showed like-for-like sales growth of 6.7 per cent and 6.5 per cent respectively, there was some signs of improvement at David Lloyd Leisure, and pub restaurants remained weak. The planned sale of 235 pubs not adjacent to hotels (about 40 per cent of the estate) was progressing well, and the company’s TFI Fridays and Pizza Hut franchises were “under review”.

“Despite a positive start to the year we believe it is too early to increase forecasts, especially given the group’s comments about a slowdown in recent weeks. However, we believe the risks remain to the upside and we are encouraged to see evidence of an operational turnaround,” said UBS.

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It was confession time for Fibernet, which warned that full-year profits will miss current forecasts after mistakenly booking £1 million of expenses on a services over three years that should have been annualised.

That means earnings at the telecoms group will be £700,000 lower this year, and £350,000 in the next two years. Analysts reckon that, for 2006, that will mean a loss of around £3.5 million. Shares were marked back 1.5p to 42p.

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Her Majesty’s dress maker, Hardy Amies, was atop the FTSE small cap index after it reassured that plans to capitalise on the couture brand remain on track.

In late April, Icelandic investors put £3 million into Amies in return for a 49.9 per cent stake, with the cash earmarked to developing a men’s off-the-peg duds, that was due to turn up in the shops from July. Posh frocks would follow just over a year later.

But no further news had investors fearing the worst, and Amies shares dropped from 5.5p at the time of the Icelandic announcement, to 2.75p earlier today. That forced the company to put out a statement saying its plans to roll out the brand are still being formulated and more news would arrive “in due course”. Shares rallied to 4p, up 1.13p on the day.

On broker watch:

Merrill Lynch rated Debenhams a “buy” in new coverage, with a 230p target.

Dresdner Kleinwort started Debenhams with an “add” stance and 205p value.

Deutsche Bank lifted Arm Holdings to “buy” from “hold”.

Arbuthnot moved Avocet Mining to “strong buy” from “buy”.

KBC Peel Hunt moved Tribal to “buy” from “hold”.

Altium moved Mouchel Parkman to “buy” from “add” and cut Interserve to “reduce” from “hold”.

Evolution Securities cut GW Pharmaceuticals to “hold” from “add”.

And Numis Securities raised VT Group to “buy” from” add”.

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