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FTSE 100 slips back but Glencore edges higher after $1bn share buy back

This article is more than 9 years old
Investors cautious after recent rises ahead of Bank of England and Fed minutes

Markets have paused for breath after recent rises, not helped by a number of companies seeing their shares go ex-dividend.

But after Tuesday's disappointment from BHP Billiton, which unveiled a demerger but failed to announce a cash return to shareholders, Glencore has pleased investors with a $1bn share buyback. The commodity trader and miner said it would launch a buyback programme over the next six months, as it beat forecasts with an 8% rise in first half profits to $6.5bn. It also raised its interim dividend by 11%.

The news has helped Glencore edge 1.9p higher to 360.85p, but Macquarie analysts issued a neutral recommendation:

Glencore continues to build a track record that highlights its attractive long-term differentiated business model versus major mining peers and potentially the ability to return capital on a more regular basis. We continue to see downside risk to future earnings given spot prices versus [our] forecasts but Glencore is demonstrating an ability to progress through the cycle virtually regardless of commodity prices.

Overall the FTSE 100 has slipped 20.03 points to 6759.28, following a flat performance from Asian markets and awaiting minutes from the Bank of England and US Federal Reserve. A profit warning from Carlsberg due to Russia did not help sentiment.

Among the companies going ex-dividend were British American Tobacco, down 71.5p to £35.10, Mondi, 22p lower at £10.01 and Prudential, off 8p at £14.23.

Investors have been seeking havens as risk appetite eases, with utilities in demand. SSE is up 11p at £15.16, Centrica has climbed 3.1p to 318p and United Utilities is up 4.5p to 880.5p.

Among the mid-caps Balfour Beatty is down 16.1p to 239.9p after it rejected the latest offer from predator Carillion, 9.1p lower at 327.6p.

Westhouse Securities has issued a sell recommendation on Balfour, saying:

Balfour Beatty has rejected Carillion's offer for a third time, will not seek an extension of tomorrow's Put Up or Shut Up deadline and is continuing to pursue the sale of professional services business, Parsons Brinckerhoff. We believe this is likely to weaken the share price in the short- term, but for Balfour shareholders it was a case of "damned if they did, damned if they didn't" re-engage in talks. We reiterate our sell recommendation.
The real concern, even if a deal had gone ahead, was it was based on Carillion's share price, which would have been influenced by execution risks on the deal and a variety of what we see as threats facing both businesses going forward. The risks are now that: (i) Balfour is selling its 'crown jewel', Parsons, that, in our view, really should have been central to its strategy; (ii) it has been selling it presumably in even more undue haste (at a time when there is a lot of keen M&A activity in the professional services space - two companies bidding for Hyder, AECOM bidding for URS), etc; (iii) the underlying Balfour construction business faces considerable risks and the average net debt position is really worrying; and (iv) it is a not-unreasonable fear that management, effectively 'fighting on two fronts' (fending off Carillion, selling Parsons), may have 'taken its eye off the ball' regarding the intensive action on the problem UK construction contracts which is needed to avoid potentially greater losses. In Balfour's shareholders' favour: they will get a cash return of up £200m from the sale of Parsons, widely reported to be over £700m, (but with doubts over the future sustainability of the dividend); a revalued PPP portfolio (but to greater or lesser extent in most analysts' sum of the parts calculations); its own efforts to improve underlying construction margins (for which they will retain 100% of the benefits); and other potentially value-enhancing moves suggested in Balfour's latest official bid responses. That said, we believe concerns about management strategy and the risks rather than the upside in the construction business will prevail. One potential positive catalyst would be the appointment of an exceptional chief executive. However, we note that it is an old City adage that an incoming chief executive is often accompanied by a fresh round of 'kitchen sinking'.

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