ITV hit by ad sales worries

A barrel of New York benchmark crude cost $65.50 a barrel, down 11 cents on yesterday but showing little reaction to news of an attack by gunmen on the US embassy in Damascus. The futures yesterday breached $65 a barrel for the first time since March as Opec held production quotas and a European Union official said Iran would temporarily halt its nuclear enrichment programme during any negotiations.

Oil price weakness took the sting out of some fairly hawkish inflation data, with the UK target rate reaching 2.5 per cent in August -- up from 2.4 per cent and matching the highest rate since records began in 1997. Economists had forecast an unchanged reading, and would under normal circumstances have reinforced expectations that the Bank of England would raise rates in November.

“The fall in petrol prices over the past month could potentially have a huge negative effect on inflation in next month’s September report,” wrote George Buckley, Deutsche Bank’s UK economist. The broker’s own survey shows a 7 per cent drop in petrol costs between the middle of August and early September; Mr Buckley reckons this will knock 0.4 percentage points off UK inflation this month, pulling the headline rate to 2.3 per cent.

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Leading the FTSE loserboard, ITV fell 2.25p to 98.75p. That follows UTV, operator of the ITV franchise in Northern Ireland, indicating that its own initial TV ad sales were down 10 per cent for October. For the flagship ITV1 channel alone, that will likely translate to a 20 per cent drop – even worse than September’s estimated 12 per cent decline.

According to media team at Investec, UTV’s data backed up comments from media buyers that trading remains extremely tough. The South African broker cut fourth-quarter revenue forecasts for ITV to assume a 15 per cent sales drop for the main channel, which translates to an earnings per share cut for this year and next of 4 per cent and 5 per cent respectively.

But Investec repeated “hold” advice on ITV. “Speculative interest is a positive, plus there is potential for favourable sentiment on a new CEO appointment ... However, we believe near-term revenue pressure remains strong and shares should remain challenged on pure trading grounds,” it said.

GCap Media, the radio broadcaster which some analysts believe could breach banking terms if its ad revenue deteriorates any further, was among the sharpest FTSE 250 fallers on a loss of 7p at 186.75p. GCap shares have tumbled from 209.75p since Merrill Lynch raised the issue of its lending agreements last Friday.

Shares of UTV, formerly known as Ulster Television, took on 4.25p to 370.75p. Management gave nothing away on their long-running flirtation with SMG, Scotland’s main ITV broadcaster, which rejected two merger proposals last month.

Back among the blue chips, and Drax, owner of Britain’s biggest coal-fired power station, dropped 17.5p to 856p after its first set of interim earnings came in towards the lower end of expectations. Pre-exceptional underlying earnings rose threefold to £239 million because of resilient wholesale prices over summer.

The dark spread prices had well known to investors and the group had provided a detailed trading statement, so the City had already been forecasting between £225 million and £277 million. The cost line led Drax to miss the top end of that range , with fuel costs, staff expenses and stoppage costs all weighing.

Drax also confirmed it will pay out a special dividend of 80p -- at the top end of company guidance but again well anticipated by investors. Drax shares have been the best-performing European blue chip in the year to date, jumping 76 per cent.

Analysts reckoned there was not much to get excited about, but saw the numbers as emphasising that Drax’s current profit generation is unsustainable.

“Going forward we expect UK gas and power prices to fall significantly in the next 12 months due to a sizeable level of new gas infrastructure being commissioned,” said Dresdner Kleinwort, referring to a new pipeline from Norway that comes on line later this year.

“Drax is essentially a play on commodity prices and the current environment for commodity prices is challenging,” added Cazenove.

Speaking of: the metals and mining companies were a mixed bag following yesterday’s drop. Copper futures in Shanghai hit daily loss limit for a second day before short-covering provided a line of support, while gold steadied near a two-month low.

Antofagasta lost 1.75p to 446.25p and Kazakhmys fell 11p to £12.15. Steel maker Corus -- a weak performer of late as bid hopes withered -- today rallied 8.25p to 735.75p.

Track today’s trading by industry sector here.

Carnival jumped 85p to £24.33 ahead of a third quarter trading statement due on or around September 21. The cruise ship operator’s stock has rallied 20 per cent from lows as peer Royal Caribbean gave a positive update, fuel prices fell and the hurricane season progressed without major event.

Credit Suisse was more than cautious, advising clients to short the stock ahead of the trading news.

“We believe investors are underestimating the extent of (near term) demand weakness and precedent cyclical pricing dynamics,” it said in an e-mail. “Our checks indicating continued fundamental deterioration, particularly in Caribbean where capacity is concentrated in the fourth and first quarters. We expect Carnival’s update to confirm our stance on near-term demand weakness and support our view that net yield growth will turn negative year-on-year in 2007.”

In the mid-caps, engineer Morgan Crucible jumped 17.25p to 295.25p on rumours of a twist in its bid discussions.

The crucible maker admitted it was in bid talks last month, and was reported a few weeks ago to have knocked back German peer SGL Carbon to continue negotiatons with a private equity firm. According to today’s gossip, SGL could be sounding out shareholders to see if it can take another tilt at the UK group.

Engineers including Morgan Crucible were also aided by earnings news from Charter -- which owns Esab welding equipment and Howden ventilation systems. Charter shares added 60.5p to 781.5p after it posted a better than expected 55 per cent increase in first half profits.

Earnings totalled £68.9 million, though this was boosted by property gains and tax breaks that added up to more than £10 million. Underlying profit still impressed, thanks to demand from heavy industry and the oil sector, and management said to expect annual results ahead of market expectations.

The only surprise was that Charter did not declare a dividend, despite sitting on net cash of £36.2 billion. This stoked speculation that the engineer may be weighing up an acquisition.

Meanwhile, defence and aerospace contractor Cobham took on 5.25p to 175.25p after its interim earnings topped expectations, up 15 per cent at £81.8 million before tax on a continuing trade basis.

Its flight refuelling division proved to be the only mild disappointment as other five divisions picked up the slack, most notably defence electronic systems and antennas. Merrill Lynch and UBS analysts both repeated “buy” advice, with share price targets of 196p and 225p respectively.

“These results should allay some fears over Cobham’s earnings guidance,” said UBS. It highlighted that the shares currently trade at 12.1 times earnings against a sector at 13.3 times, partly because of its under-levered balance sheet.

“Cobham is on the acquisition trail which should add to earnings growth, and its strong position in niche markets makes it a good acquisition candidate itself,” said UBS. “Given the strength of these reported numbers and Cobham’s prospects, we do not believe that this discount is warranted and would expect the share price to appreciate from here.”

Property builder Redrow firmed 40p to 570p after its half year results matched an earlier trading statement, with clean profit before tax of £122.5 million. It echoed recent upbeat comments from peers, saying sales in the year-to-date were up 10 per cent.

“We have considered Redrow to be our preferred stock in the sector for most of this year, “said Charles Stanley, which upgraded to its rating on Redrow to “accumulate from “hold”. “While we believe it is not a prime candidate as a bid target, partly because of its rating, partly because it is already well run and partly because it does not offer a particular add-on niche, there is a small element of potential upside from that source,” said the broker, which reckoned Bovis Homes was an outside chance to emerge a predator.

Misys lost 19.25p to 231.25p, having tumbled as low as 224p earlier. That was partly because of a mishandled share placing, but mostly amid panic selling as a rumour went around that at least one of its potential bidders had walked away.

The truth, according to the company, was a bit more complicated.

Misys’s independent board said it had not received any proposals it considered good enough to put to shareholders, but added that discussions are continuing. US software firms SunGard Data Systems and Fiserv are rumoured to be leading the hunt to buy the £1.2 billion-valued software provider.

On broker watch:

Altium raised Axon to “buy” from “add”.

Merrill Lynch restarted coverage of Premier Foods with a “buy” rating and 300p target price.

Dresdner Kleinwort upgraded Costain to “buy” from “add”.

UBS cut Whatman to “neutral” from “buy”.

Citigroup started ICap with a “buy” rating and 585p target, and cut Premier Farnell to “hold” from “buy”.

Lehman Brothers rated Alliance Boots “underweight” in new coverage, with a 720p target.

Deutsche Bank cut Group 4 Securicor to “hold” from “buy”.

And Morgan Stanley moved to “equal weight” from “overweight” on Stagecoach.