4th Aug 2014 16:10
LONDON (Alliance News) - The FTSE 100 closed fractionally lower Monday, meaning it has now ended the day in the red for four days in a row, despite spending the vast majority of the day in positive territory after results from HSBC Holdings were deemed to be positive despite a drop in pretax profit.
The blue-chip index opened modestly higher as the state bailout of Portugal's troubled Banco Espirito Santo over the weekend appeared to have returned calm to the market following last week's sell-off.
The troubled bank is to receive EUR4.9 billion in state aid, in a move announced late Sunday after the bank announced a EUR3.57 billion loss for the first half of the year last week. Espirito Santo will be split into a good and bad bank in a similar move to that carried out by Royal Bank of Scotland Group in the UK.
However, the latest news only serves to heighten the focus around the results of the Asset Quality Review, or bank stress testing, currently being carried out by the European Central Bank.
"A EUR4.9 billion bailout for Banco Espirito Santo has helped reduce the risk of banking contagion in Europe," said Jasper Lawler, a market analyst at CMC Markets. However, "the BES episode will not be soon forgotten...It has left many wondering how far we’ve come since the European debt crisis and whether another example is just around the corner," he said.
A late sell-off saw the blue-chip index end the day fractionally lower.
The FTSE 100 closed down 0.02% at 6,677.52, while the FTSE 250 closed down 0.3% at 15,362.57, and the AIM All-Share index closed down 0.8% at 756.14.
Meanwhile, the CAC 40 in Paris closed up 0.3%, while the DAX 30 in Frankfurt closed down 0.6%.
In the US, at the UK equity market close, the DJIA is a touch lower, while the S&P 500 is up 0.1%, and the NASDAQ Composite is up 0.2%.
"Investors are a little concerned that the sell-off which started last week is not over and could lead to something much bigger," said Craig Erlam, a market analyst at Alpari.
At the individual UK equity level, HSBC Holdings, which is the second-largest constituent in the FTSE 100 by market capitalisation, ended the day among the blue-chip index's biggest risers, closing up 0.9%.
HSBC reported a decrease in first half pretax profit that was a little worse than analysts expected, with the banking group continuing its efforts to replace revenue from businesses it has sold or discontinued. It said it made a USD12.34 billion pretax profit in the six months ended June 30, compared with USD14.07 billion in the corresponding period last year. A group of 15 analysts polled by the bank had forecast on average a USD12.46 billion pretax profit in the first half.
The miss came as revenue fell by 9% to USD31.17 billion, while operating expenses came down by 0.7% to USD18.27 billion.
Still, "this was a good performance in the face of further margin contraction, additional conduct provisions and lower Asia growth rates," said Mike Trippitt, an analyst at Numis Securities.
The company's earnings came under pressure due to a combination of pressure on the bank's investment banking division, Global Banking and Markets, which was hurt by low market volatility and client activity, as well as a drop in Retail Banking and Wealth Management underlying revenue due to the run-off of its higher yielding consumer mortgage lending portfolio, though its commercial and private banking divisions saw increases in pretax profit.
Quality testing company Intertek Group ended the day as the biggest riser in the blue-chip index, closing up 6.8%. The company reported lower profit for the first half of the year as the strength of the pound hit revenue earned abroad, but predicted organic growth in the second half of the year and beyond.
Intertek reported a pretax profit of GBP119.8 million for the six months to the end of June, down from GBP127.9 million a year earlier, as revenue declined to GBP1.02 billion, from GBP1.08 billion. Revenue would have increased 2.9% at constant exchange rates thanks to acquisitions, with organic revenue at constant rates down 0.5%. It said sterling's strength knocked GBP89 million off its revenue.
However, looking ahead, "organic revenue growth for the group will strengthen in the second half as one-off effects annualise and as we continue to see good growth in other areas of our portfolio," said Intertek's Chief Executive Wolfhart Hauser, predicting high single-digit organic revenue growth over the "coming years".
"Following a period of share price underperformance, we believe that Intertek has turned a corner, and management's confidence is increasing," said Steve Woolf, an analyst at Numis.
Keller Group, closing up 1.6%, was one of the biggest risers in the FTSE 250. The engineering contractor's shares rose after it reported a 21% increase in pretax profit for the first half, despite tough conditions in Canada, a market it has targeted over the last 18 months.
The company posted pretax profit of GBP32.5 million for the six months to end-June, up from GBP26.8 million a year earlier, as revenue rose 22% to GBP788.2 million from GBP644.6 million. It said all four of its divisions achieved strong revenue growth compared with the same period a year ago, despite an adverse currency translation impact.
On the back of this, the company increased its interim dividend 5% to 8.4 pence from 8.0 pence a year earlier.
Alent was another big gainer in the mid-cap index, closing up 2.2%, after it said its pretax profit increased in its first half, and it proposed a GBP42 million special dividend, as a reduction in revenue was offset by lower costs and expenses. The advanced surface-treatment plating chemicals and electronics assembly materials company said its pretax profit increased 3.7% to GBP41.8 million for the six months ended June 30, from GBP40.3 million in the previous year.
At the other end of the spectrum, Telecity Group, closing down 4.4%, was the second-biggest loser in the FTSE 250 Monday. The data-centre provider's shares fell even though the company posted a rise in revenue and pretax profit in its first half on the back of strong demand in the European data-centre market.
The company said revenue rose 9.3% to GBP174.1 million, from GBP159.3 million a year earlier, with adjusted earnings before interest, taxation, depreciation and amortisation up 11% to GBP81.6 million against GBP73.8 million in 2013. On the back of the results, the company lifted its dividend by 29% to 4.5 pence, from 3.5 pence a year ago.
However, the company said churn levels - meaning cancellations and new sales - were elevated in the first half. It said the first-half churn is likely to hit earnings in the second half, but it expects its order book to improve in the medium term.
In the forex market, the pound edged slightly higher against its major rivals Monday, following a better-than-expected reading of the UK Markit construction purchasing managers' index for July. The index came in at 62.4, down from 62.6 in June, but ahead of the expected reading of 62.0 and remaining very strong considering that a reading above 50.0 indicates expansion.
Residential housebuilding in the UK is seeing a particular boom, with the report noting the steepest rise in residential building activity in more than a decade, attributed to favourable funding conditions and strong demand for new housing starts.
"The index signals extremely strong construction growth, particularly in housebuilding which apparently just saw its fastest expansion since November 2003," said Rob Wood, chief UK economist at Berenberg.
At the UK equity market close, sterling trades at USD1.6838, EUR1.2552, CHF1.5272, and JPY172.552.
In a slightly busier day in the economic calendar Tuesday, the latest reading of the Japanese Markit services purchasing managers' index is released at 0235 BST, ahead of the Chinese HSBC services PMI reading at 0245 BST.
The latest reading of Italian services PMI is scheduled at 0845 BST, with the French equivalent at 0850 BST, the German reading at 0855 BST, and the figure for the wider eurozone area at 0900 BST. The UK Markit services PMI reading is due at 0930 BST, ahead of eurozone retail sales data at 1000 BST.
In the afternoon, Markit services PMI data are published at 1445 BST, shortly before the Institute for Supply Management's US non-manufacturing PMI reading and factory orders information at 1500 BST.
In the corporate calendar, FTSE 100-listed Aggreko, Fresnillo, Meggitt, and Standard Life are joined by FTSE 250-constituents Inmarsat, BBA Aviation, and Rotork in releasing half-year results Tuesday
By James Kemp; [email protected]; @jamespkemp
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