The FTSE 100 and 250 dived today as Glencore pulled its dividend and amid news of a greater wait for economic recovery, but the AIM market bucked the trend to rise sharply.
The flight from risk derailed progress seen earlier in the week, with BP (LSE:BP.) falling back 4% after investors had previously been positive about Tuesday's strategy update and dividend cut.
It was Glencore's turn today to deal a blow to income investors, with its pay-outs for 2020 scrapped entirely to accelerate the reduction in net debt. The miner and commodities trader, whose shares skidded 6% to 183.5p, also reported a half-year loss of £2.6 billion.
Mining stocks Rio Tinto (LSE:RIO) and Anglo American (LSE:AAL) were also down by more than 3%, while shares in BA owner International Consolidated Airlines Group (LSE:IAG) were again volatile after dropping 7%.
The weak performance meant the FTSE 100 index dropped to below 6,000, with the FTSE 250 index also down by 1.2% as investors in the domestic-focused second tier paid close attention to the latest forecasts from the Bank of England.
While the economic slump caused by Covid-19 has not been as severe as originally feared, the Bank's central scenario still points to the UK contracting by 9.5% this year. Of more importance to UK investors is the fact that policymakers now think it will take until the end of 2021 to get activity levels back to where they were before the pandemic.
Outsourcer Serco (LSE:SRP) was the biggest faller in the FTSE 250 index as the impressive run for its shares came to an abrupt halt in the wake of half-year results. Chief executive Rupert Soames says the first half performance had been “exceptionally strong” as a result of contract wins in 2019 and more ups than downs resulting from Covid-19.
During the pandemic, tens of thousands of Serco staff were on the front line in hospitals, prisons, trains, refuse lorries, asylum seeker accommodation, contact centres and sites of national strategic importance.
Half-year earnings per share jumped 47% to 3.86p, prompting the decision in June to reinstate financial guidance with a forecast for full-year profits of between £135 million and £150 million, compared with £120 million a year earlier.
Soames stuck by those estimates today but disappointed investors by delaying a decision on dividend payments until later this year due to significant uncertainty around the outlook.
In February, Soames celebrated the turnaround of the former blue-chip stock by declaring a shareholder payment for the first time in six years, only for the award to be withdrawn in April. Having just recovered all the ground lost since the start of the pandemic, shares were 13% lower at 146.8p.
The company had been on the front foot until the pandemic resulted in the postponement of the Olympics and Paralympics in Tokyo, where the company had just committed £15 million of fleet capital expenditure. A sharp reduction in the oil price also impacted two of its key market sectors, in oil and gas and petrochemicals and refining.
Underlying profits fell 13% to £47million in the half year, but with conditions beginning to stabilise the company thinks it can still achieve a full-year surplus of between £80 million and £100 million. Chief executive Chris Weston also pointed to the company's balance sheet strength, which let it declare an interim dividend of 5p with today's results.
Shares eventually settled 2% lower today at 410.4p, with analysts at Jefferies sufficiently impressed to increase their price target to 720p. Difficult markets have led to second half downgrades, but the broker upgraded its 2021 forecasts and is at the top end of City forecasts for 2022.
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Elsewhere in the FTSE 250 index, shares in specialty chemicals firm Synthomer (LSE:SYNT) rose more than 2% to 303p after it reinstated financial guidance on the back of much improved trading in June and July. The company, which is one of the world’s biggest suppliers of aqueous polymers, also signalled its intention to pay a dividend in relation to 2020 trading.
One of the more curious features of the session was the robust performance of the AIM 100, which rose nearly 1% in contrast to the big declines seen by indices on the main market. The resilience reflected gains of more than 3% for some of AIM's biggest stocks, including Boohoo (LSE:BOO), ASOS (LSE:ASC), Hutchison China Meditech (LSE:HCM) and Fevertree Drinks (LSE:FEVR).
There was also a jump of 8% for one of this year's most popular stocks on the interactive investor platform. AIM-listed Avacta Group (LSE:AVCT) has soared from 20p in April to as high as 202p after the developer of Affimer-based biotherapeutics disclosed a partnership with Cytiva — formerly GE Healthcare Life Sciences — to deliver a rapid test for Covid-19.
Shares have fallen back in recent weeks, although they were on the boil today after Avacta disclosed a manufacturing partner for the test being developed with Cytiva.
Chief executive Alastair Smith says:
“We anticipate very high demand for the Covid-19 rapid test and will be working with our preferred manufacturing partners at BBI to satisfy that demand.”
He added that discussions were also taking place with other manufacturers to ensure access to additional capacity for the years to come. Shares were 8% higher at 139p.
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