Friday, July 29, 2011

Vodafone bucks falling market on �2.8bn dividend, but US debt woes weigh on FTSE

In a market already spooked by US debt disagreements and the threat of a downgrade of Spain's credit rating, poor US growth figures only served to unnerve investors further. But Vodafone bucked the trend after some positive news from across the Atlantic - the announcement of a long awaited dividend payment from its US joint venture Verizon Wireless.

Vodafone will receive �2.8bn from Verizon Wireless, and as a result the company will pay a special �2bn dividend to shareholders - equivalent to 4p a share - in February next year. In a buy note Investec analyst Morten Singleton said:

We believe this will mark the resumption of regular dividend flows from Verizon Wireless [which] is the cash cow for Verizon, and in order that Verizon can sustain its dividends to shareholders, we believe the cash must continue to flow from Verizon Wireless.

This is clearly positive news for the Vodafone group, and perhaps marks a turning point in relations with its US partner.

Morgan Stanley analysts said:

The timing of the announcement is earlier than expected by us and the market. The quantum is also higher: we forecast a 12p total dividend, but an ordinary of 9.5p on the current policy plus the announced special dividend of 4p implies 13.5p.

The mobile phone group's shares jumped 6.6p to 172p, a 4% increase which added 13 points to the leading index and helped limit some of the damage done by global concerns. With US GDP rising by just 1.3% in the second quarter, compared to expectations of at least 1.8%, the FTSE 100 lost 58.02 points to 5815.19. Wall Street was down 40 points by the time London closed.

But both markets came off their worst levels on hopes that US politicians would be forced into an agreement on the country's debt problems before the almost unthinkable happened and it defaulted. Angus Campbell, head of sales at Capital Spreads, said:

As we head into the week end, markets on the whole still maintain that there will be a deal done to avoid a [US] default ahead of next Tuesday's deadline. In the face of the selling the FTSE has done remarkably well to prevent losses from being even greater and late on in the session buyers crept back into the market.

Banks were, unsurprisingly, among the main fallers, with investors concerned about their exposure to sovereign debt. Lloyds Banking Group, already under pressure on worries about its proposed sale of more than 600 UK branches, lost 1.65p to 43.35p. To add to the indignity, it was also downgraded by analysts at rival taxpayer controlled bank, Royal Bank of Scotland, down 0.59p at 35.69p. RBS moved its recommendation on Lloyds from buy to hold, with analyst Asheefa Sarangi saying:

Given what looks to us like an overambitious top-line strategy, an tough economic backdrop, regulatory uncertainty and limited repatriation of capital until 2015, we see little potential for the shares to achieve a sustainable re-rating in the next 12 months.

Miners were also unwanted as investors shied away from risk, with Anglo American 98p lower at �29 after its first half earnings came in below expectations, partly due to production problems at its copper operations in Chile.

But with precious metals still proving a safe haven, Mexican gold and silver miner Fresnillo rose 38p to �17.60. And Finnish group Talvivaara Mining Company added 29.1p to 429.6p ahead of joining the OMX Helsinki 25 index on Monday.

Elsewhere J Sainsbury slipped 2.9p to 304.1p as Evolution Securities cut its price target on the supermarket group. Analyst Dave McCarthy said:

New data from property advisor CB Richard Ellis shows planned space additions are accelerating. New grocery space "with consent or under construction" is up 22% in a year, to over 23m square feet (bigger than Sainsbury). Rather than cutting expansion, planned capacity growth is accelerating and planning consents are being granted at record rates. Capacity growing faster than demand is threatening like for like sales, returns and sales densities. We are increasingly concerned on the sector prognosis and on the implications for Sainsbury, which [with high gearing and weak cash flow] is the most fragile. Given our concerns, we cut our Sainsbury target price to 290p from 310p.

Meanwhile SuperGroup lost 46p to �10.65 as it started a 20% sale on its website this weekend. In June its shares were hit when it offered in-store discounts for its internet users.

Well received trading updates lifted United Business Media 27p to 541p and Rentokil Initial 1.5p to 91.8p.

But Kofax lost another 31p to 362p as an afternoon conference call in the wake of Thursday's disappointing trading update from the software group did little to make things any better. Analyst Julian Yates at Investec said:

This afternoon's conference call confirmed our concerns that near term growth optics are going to look poor. Our concerns that fourth quarter licences were very weak, the first half of 2012 will show tepid growth due to a strong compare (implies muted margins as investment plans continue) and 2012 will be very second half weighted were all confirmed. As well as two large US Government slipped deals, weakness seems to be slowly seeping across other verticals. We take another 5% off our 2012 earnings estimates with a new target price of 344p. For now, hold at best.

Finally Coal of Africa fell 4.5p to 71p after its water licence was suspended at its controversial Vele Colliery in South Africa following an appeal submitted by an NGO coalition on Thursday. The company had received environmental consent for the colliery, which is close to a Unesco world heritage site, earlier in July, but this new move means it cannot proceed with activities at the site requiring water use. It intends mounting its own appeal as soon as possible.


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Source: http://www.guardian.co.uk/business/marketforceslive/2011/jul/29/vodafone-bucks-falling-ftse

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