After hitting a three year low on Monday, leading UK shares have made an attempted bounce back.
But some FTSE companies are missing out, notably chip designer Arm which is down 13p at £10.28 after German semiconductor group Dialog cut its sales forecasts. Meanwhile smaller rival Imagination Technologies is own nearly 6% at 154p after it warned on profits, citing a slowdown in semiconductor and smartphone markets.
Earlier this week Morgan Stanley sales sales of Apple’s iPhone could fall 6% in 2016 due to higher prices in markets outside the US and near saturation in developed countries. Apple of course is a key customer for Arm and Imagination. Analysts at Liberum, long time sellers of Arm, said:
Dialog which is a key supplier to Apple has warned. Dialog now expects fourth quarter revenue of $395m, 11% below previous guidance of $445m. This is the first warning from the Apple supply chain. Volume growth from Apple has been the key driver of many tech stocks. This is now slowing.
On Imagination, analyst Roger Phillips at Investec said:
Interims are very weak, with disappointment in all revenue lines and control over opex base growth a damage limitation exercise. Unit volume declines are alarming, but especially for MIPS. While the figures are particularly poor, Imagination is no stranger to reporting disappointing numbers, having done so for several years. However, at around 2.7 times enterprise value/sales versus a long term trend of 5 times, we remain buyers, given that the steps needed to run this IP-rich business in a financially disciplined way appear obvious – and a catalyst for change is evident.
In our view, the catalyst for change exists in the form of the new(ish) chairman, whose history suggests that the necessary changes will ultimately be made (Vestas Wind Systems).
Oil has edged higher with Brent crude up 0.8% at $38.24 after flirting with 11 year lows on Monday, so energy companies are moving ahead. Royal Dutch Shell A shares are up 42p at 1460.5p while BG, which it is proposing to acquire, is 27.5p better at 947p.
Meanwhile Tullow OIl has climbed 10.1p to 162.2p as it said it had found oil in northern Kenya. But Cantor Fitzgerald kept its sell recommendation. Analyst Sam Wahab said:
A reversal of fortunes with the drill-bit sees Tullow record encouraging initial results at the Etom-2 well in Block 13T in Kenya. Oil samples, sidewall cores and wire line logging all indicate the presence of high API oil in the best quality reservoir encountered in the South Lokichar Basin to date.
[But] with lower prevailing oil prices expected to continue into 2016 and little room for operational error at TEN [in Ghana], we believe the company’s financial position could be under considerable strain without asset sales or an issue of equity. A risk not worth taking, in our view. Our valuation attributes a core value of 109p, and 68p of risked exploration upside. We therefore retain our sell recommendation and our target price of 176p.
Elsewhere Glencore is up 4.48p to 84.48p as JP Morgan Cazenove raised its rating from neutral to overweight.
Sainsburys is 10.5p better at 247.4p as its sales rose 1.2% in the 12 weeks to the start of December, according to market research group Kantar Worldpanel. Morrisons, up 6.2p at 146.4p, and Tesco, 4.9p better at 147.95, were also in demand despite subdued grocery sales overall.
Among the other fallers, Randgold Resources is down 51p at £39.91 and Mexican precious metals miner Fresnillo has fallen 0.5p to 664.5p as gold and silver dipped.
Randgold was also hit by a downgrade by Credit Suisse, which cut its target price from £40.40 to £39.
Elsewhere IT group Aveva slumped after a planned tie-up with France’s Schneider Electric – announced in July – was scrapped as being too risky and costly. Julian Yates at Investec said:
Talks with Schneider have been terminated as it became apparent that the uplift in shareholder value originally anticipated was unlikely to be realised. This is disappointing as we thought the initial deal terms were attractive and the strategic rational appeared sensible considering Aveva’s current position. In our view, yesterday’s closing price of 2166p implied a near 18 times PE, accounting for the proposed near 950p cash return. After the initial fall this morning, we expect the shares to be volatile, but further M&A possibilities could lend some support.