Tobacco companies moved higher after the European Union rejected relaxing duty-free laws, while broker downgrades weighed on Kelda and British Land as London’s top stocks hit the skids.
The FTSE 100 index closed lower by 20.3 to 6140.0, its worst this month, having swung between an initial peak of 6181.7 and an early afternoon low of 6115.1. With Wall Street on holiday for Thanksgiving, volume was about two-thirds of the average.
Imperial Tobacco added 33p to £18.55 and Gallaher was ahead 7.5p to 935p after the European Court of Justice unexpectedly ruled British that consumers who order alcohol and tobacco online from the European Union should not be allowed to dodge paying UK duties. Consumers who buy booze and smokes in another member state must pay the tax rates in their home state unless they physically bring it home themselves. The ruling cannot be appealed.
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“We had expected the ruling to go the other way, as rulings usually follow the Advocate-General’s opinion, and he had recommended liberalization,” Adam Spielman, a Citigroup analyst, told clients. “Had the ruling allowed Internet purchases, smokers in Britain would have had every incentive to buy lower-margin cigarettes abroad, damaging industry profits.”
The ruling comes as the EU Commission is writing proposals to reform the tobacco tax system, with all changes hacing to be agreed unanimously by all 25 finance ministers. “Had Internet trading been allowed, it would have created more incentives for real compromises. Now there is less pressure to agree reform,” Mr Spielman continued.
Cairn Energy jumped 52p to £19.70 after its sold about 10 per cent of shares in Cairn India to Petronas, the Malaysian oil firm, as part of a pre-IPO placement that raised $822.47 million. After placing the 210 million shares, 176 million of which went to Petronas, Cairn reduced its public float to 329 million from 538 million.
The sale implies Cairn India will have a market capitalisation of $6.92 billion, and the proceeds from the 30.5 per cent of stock available to new shareholders will amount to $2.112 billion, 15 per cent higher than initial expectations of $1.8 billion. However, it was not all good news, as Petronas’s purchase was seen to limit the chances that Cairn India will be bought post flotation. Analysts also noted that the pre-IPO price was only indicative, so Petronas and other pre-IPO buyers may yet end up paying a lower price if Cairn India float disappoints.
Wolseley was among the fallers, down 9p to £11.59 on talk that its annual general meeting statement next week could disappoint. The builders’ merchant, which gets more than half its sales from across the pond, could be hit by slowing lumber demand from US house builders and may be forced to look at reshaping the business.
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British Land slipped 33p to £15.52 after HSBC analysts recommended investors “top slice” their holdings, cutting their recommendation to “neutral” from “outperfrorm”. That follows Sir John Ritblat, British Land’s svengali for three decades, yesterday selling the majority of his holding.
Meanwhile, Kelda was off 21.5p to 916p after Citigroup downgraded the utility so “sell”, saying the shares have discounted the chance of a takeover having reached record highs yesterday.
Galiform, the merchanting rump of MFI, led the mid-caps with a rise of 4.75p to 121.25p after saying it sees full-year profit in line, bolstering confidence that its recovery remains on track. The group’s Howdens division showed sales up 5.2 per cent on a like-for-like basis after 44 weeks, which includes the key October selling period.
“The shares have bounced strongly but the stock remains an attractive value and self-help recovery story,” said Dresdner Kleinwort, although the broker’s team conceded that the stock’s rating of 22.7 times 2007 earnings looked “unexciting”. Investors will increasingly look towards later years, when multiples reduce to the mid-teens, it said.
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On a more speculative tack, Dimension Data was up 0.75p to 42.75p amid vague gossip that the South Africa-based network installer could be a takeover target at around 52p a share.
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