Glencore dives deeper into red
THE rollercoaster ride continued for Glencore investors yesterday as its shares dived further into the red, dropping 5pc.
The commodities trader and mining giant is one of the worst performing Footsie stocks this year.
A massive sell-off following its £1.6bn equity raise last month, amid fears its crippling £20bn debt pile could mean it cannot cope if commodity prices fall further, has left it down more than 60pc since the start of the year. The shares have swung violently in recent weeks including to an all-time low of 68.6p at the end of September.
However, in recent days analysts including those at Citi yesterday, have said they believe the sell-off has been overdone.
Citi’s scribblers said the theory that Glencore is ‘facing an imminent and precipitous fall in earnings are overdone’. Citi suggests its debt pile is ‘manageable’ if it pulls off its debt reduction plan quicker than its current end of next year target. It has already announced the planned sale of £1.3bn of assets and another £500m of other mine sales could follow.
Glencore’s slump yesterday – down 6p to 110p – was largely due to data from China turning all mining shares red after economic numbers revealed stalling growth for the biggest consumer of commodities.
The Chinese GDP figures, industrial output and retail sales numbers were not as bad as feared but they still show growth is not at rates previously enjoyed by the world’s second largest economy.
IG analyst Chris Beauchamp said the sector was at least ‘spared from a fresh bout of panic selling’.
But he added: ‘The figures will do nothing to dispel the i dea that this particular growth bonanza has come to an end. Big name mining stocks are in the red again this morning, with the sector at its lowest level in nearly two weeks. It looks increasingly like the bounce of early October was a false dawn, and barring some kind of sustained revival in risk appetite, perhaps via fresh monetary stimulus, the sector is heading lower once again.’
There are also concerns that the Chinese figures themselves are not accurate and that growth is even worse than officials claim.
The big mining stocks suffered. Anglo American was the worst – down 7.4pc, or 49.8p, to 625.5p. Chilean based copper miner Antofagasta slipped 3.5pc, or 20p, to 559.5p.
Mexican silver miner Fresnillo also fell more than 3pc, by 25p to 734.5p, and BHP Billiton was nearly 3pc, or 33.5p, down at 1096p.
The poor performance put in by the mining sector dented the entire benchmark index yesterday and the FTSE 100 fell 25.71 points to 6352.33. However, the mid-tier table was on better form and the FTSE 250 rose 24.64 points to 16917.34.
Drug-maker Shire went from crashing lows to being top of the leaderboard.
It had a setback in the US for its treatment for dry eyes on Friday after the markets closed in the UK which sent its shares south in early trade yesterday.
The US Food and Drug Administration (FDA) has not approved its dry eye drug lifitegrast and requested an additional clinical study.
The drug, when approved, has potential to become a $1bn-a-year-plus seller. Shire’s shares have been weak for months.
It has already lost more than a fifth of its value since it announced an all-share bid to buy US rival Baxalta during the summer. Investors are concerned the deal could fall apart. The pharmaceutical sector is also out of favour amid fears that political pressure in the US will reduce drug prices.
However, by the end of the day in London, well-received earnings from US peer Valeant helped all healthcare stocks higher and Shire finished up 115p at 4626p.
Analysts at Investec have started covering Poundland – setting a 300p price target and warning of ‘better opportunities elsewhere with less risk’.
There are concerns about the government’s proposed living wage, announced with great fanfare by George Osborne in the Budget in July, which will push up costs for businesses including Poundland.
Investec said that ‘not having flexibility to put up prices’ and right margins makes Poundland ‘vulnerable’.
Shares in the company, which peaked at nearly 419p in February, dipped another 0.5p to 289.5p.
Primark owner Associated British Foods was also on the slide, down 28p to 3280p, after analysts at Berenberg downgrade the stock from ‘ buy’ to ‘ hold’ and set a target price of 3450p.
Berenberg said it was confident about the company’s long-term potential – particularly the expansion of Primark across Europe – but added growth is likely to remain subdued this year.
A PROFIT warning at Tribal Group – and still no sign of a chief executive at the company which provides software to schools and universities – sent shares down 48.62p, or nearly 40pc, to 73.88p. Tribal warned that projects for some of its large customers had taken longer than expected, which had meant that revenue from these was delayed. It is still searching for a chief executive after Keith Evans stepped down in June.