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Earnings concerns drag on FTSE 100
November 19, 2013 / 9:21 AM / 4 years ago

Earnings concerns drag on FTSE 100

* FTSE 100 down 39.85 points at 6,683.61

* Ichan warns on potential falls on earnings worries

* Intertek, Smiths Group dip after respective updates

* EasyJet rallies as it powers ahead of rival Ryanair

By David Brett

LONDON, Nov 19 (Reuters) - The FTSE 100 tracked U.S. and Asian stock markets lower on Tuesday, with doubts setting in as to whether this year’s rally has pushed share prices higher than are justified by corporate earnings.

By 0836 GMT, London’s blue chip index was down 39.85 points, or 0.6 percent at 6,683.61, erasing the previous session’s gains.

Valuations on UK equities, while not extreme, are now above long-term averages, having gained 14 percent in 2013 on the back of the huge quantities of cash that major central banks have pumped into the financial sector.

UK stocks trade 5 percent above their 10-year average at 12.66 times projected 12-month earnings at a time when earnings forecasts continue to be downgraded, according to figures from Datastream.

Nearly two-thirds of European companies have missed revenue expectations in the current quarter, while 48 percent have missed forecasts at the profit level, according to another data provider Starmine.

“With the bulk of the results season over, investors are back to contemplating where next for earnings and exactly what the backdrop is in terms of central bank policy and where we go from here,” said Keith Bowman, equity strategist at Hargreaves Lansdown.

“Clearly there is some selective profit taking going on and it is a tough decision for potential buyers not invested in the market at these levels whether to get involved or not, given the potential pitfalls.”

Influential activist investor Carl Icahn sounded a cautious warning on stock markets a Reuters Investment Summit on Monday. He envisaged a “big drop” because earnings at many companies are fueled more by low borrowing costs than by management efforts to boost results.

Testing firm Intertek topped the list of FTSE 100 fallers, down 4.6 percent on worries over its results outlook, while bookie William Hill shed 2.5 percent with traders citing a read across from disappointing results for peer Paddy Power.

In a results heavy session, British engineering company Smiths Group fell 1.6 percent after reporting an inline trading update.

Citigroup’s equity strategists argued that while it expected companies to remain vulnerable to earnings downgrades, the broader stock market may still be able to continue its rally, given the support central banks continue to give to banking sector liquidity and an improving economic backdrop.

British budget airline easyJet rallied 3 percent after it underlined its growing advantage over struggling Irish rival Ryanair, reporting annual profit at the top end of forecasts and returning cash to shareholders.

Britain’s biggest free-to-air commercial broadcaster ITV edged up 1.8 percent after saying it expected advertising revenues across its channels to rise 2 percent for the year.

Technical analysts said the FTSE has support near the trendline of rising lows from Nov. 13 at 6,690, although the index still needs 6,695 to hold and a break above 6,725 before the uptrend can resume. It hit a 13-year closing high of 6,840 in May.

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